Govt to break up Air India into four parts to speed up privatisation process

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New Delhi: The proposed privatisation of Air India Ltd has gained momentum, with the government deciding to break the airline into four units and offer to sell at least 51% in each of them besides transferring most of the non-core debt owed by the carrier to its own balance sheet.

The core airline business comprising Air India and Air India Express—the low-cost overseas arm—will be offered as one company, and the process will be completed by the end of 2018, minister of state for aviation Jayant Sinha said in an interview with Bloomberg on Monday. Its regional arm, ground handling and engineering operations will also be sold separately in the same process.

“The aviation sector is a very fast growing sector, with really exciting opportunities for all participants, so we felt all of this will unlock growth and competitiveness of Air India group,” Sinha said. “We expect it to be a very bright future for its employees.”

On the weekend, Sinha told Network 18 in an interview that the government may keep a stake in the airline as well.

“If Air India does extremely well going forward, which is what we hope it will do, then the residual stake that we will have in Air India will become quite valuable and that will enable us to pay down the debt that the government will be absorbing as part of the disinvestment process,” he said, referring to carmaker Maruti Suzuki India Ltd which after disinvestment has “become very very valuable”.

The minister said he hopes Air India will become an even bigger and better global airline after the disinvestment.

Air India had total debt of about Rs48,877 crore at the end of March 2017—Rs17,360 crore of aircraft loans and Rs31,517 crore of working capital loans.

The government plans to hive off Air India’s unsustainable debt to a special purpose vehicle to make the deal attractive.

The government will add most of the non-core debt owed by the carrier to its own balance sheet, while borrowings linked to core operations will be retained by the unit on offer, Sinha said.

The government has already appointed EY to advise it on the privatisation exercise, in which the invitation seeking expressions of interest from would-be bidders is the first step. Cyril Amarchand Mangaldas will be the legal adviser.

The government hopes to invite expression of interest from companies after Union Budget 2018, Mint reported on 9 January.

IndiGo, run by InterGlobe Aviation Ltd, and Tata group have shown interest in Air India’s operations. Turkey’s Celebi Aviation Holding, Bird Group, Menzies Aviation Plc and Livewel Aviation Services Pvt. Ltd have shown interest in the national carrier’s subsidiaries.

The government has also eased rules allowing foreign airlines to buy a stake of up to 49% in Air India with prior government approval but with the caveat that substantial ownership and effective control of Air India will remain with Indian nationals as is the case with all domestic airlines.

Consulting firm CAPA Centre for Aviation said in a note on Wednesday that it expects “significant interest from foreign airlines” as also “4-6 serious bids for AI subject to bid conditions”.

New York-based former Jet Airways chief executive Steve Forte said: “If the suggestion to write off the debt is accepted, you will see bidders coming out of the woodwork by the dozens.”

The airline has a fleet of about 140 planes, with a 17% share of traffic on routes linking India to international destinations and about 13% share of the domestic market.

The national carrier, which is part of the world’s biggest airline grouping, Star Alliance, also has prime slots at airports across the world as also land banks and buildings among its assets.livemint