The government had last year attempted to divest its share in Air India by offering 76 percent equity stake to private parties but the plan proved to be a damp squib — not a single investor turned up to submit an expression of interest (EoI). This forced the government to put off the sale process.
After a failed attempt last year, the government has invited bids for Air India once again with a sweetened deal. The government wants a complete exit from the airline by selling a 100 percent stake. The 100% divestment offer “does not seem worth rejecting” and therefore makes it as attractive to Tatas as to other industry players.
An India executive of a foreign airline said Air India was a phenomenal brand recognized globally. He said the deal looked lucrative enough for anyone to invest, and foreign airlines too would be interested. “The government has addressed almost all the issues of the industry with this and the debt figures also look much more attractive now. We should see some bids from various airlines, who would like to tap the growing Indian market,” said the executive, speaking on the condition of anonymity. Analysts, however, said the airline’s debt and losses would be difficult for any investor to grapple with. Its accumulated losses totaled Rs 40,628 crore as per the latest government estimates.
The Indian conglomerate (Tata Group) already operates Vistara (UK, Delhi Int’l) as a 51/49 venture with Singapore Airlines. A combination of Air India and Vistara would give Tata Sons a monopoly in the country’s full-service market. The two partners have started working on a possible structure for such an acquisition, according to the reports.
Acquiring Air India would give Vistara a significant foothold into the national carrier’s network, something it needs for scale. Vistara, which started with a capital of $100 crore, has been slow to expand and currently accounts for just 6.1% of the domestic market. It started international flights only last year.
Tata also holds 51% of AirAsia India. It has approached Tony Fernandes of AirAsia Group, which holds the remaining 49% of AirAsia India, to gain his approval to acquire Air India Express. This is because the two companies’ shareholders’ agreement stipulates that Tata cannot invest more than 10% in another budget carrier without Fernandes’ approval.
Odds against the deal
Tata Sons board member Natarajan Chandrasekaran recently said that the group “will not run a third airline unless we merge”.
Air India reported a record loss of Rs 8,556.35 crore in 2018-19, compared to a net loss of Rs 5,348.18 crore reported for 2017-18. These losses were due to low fleet utilization and high fuel prices, says aviation minister Hardeep Singh Puri.
AirAsia India has been waiting for permission to fly overseas. The wait may get longer as Fernandes, R Venkataramanan, a Tata nominee on the AirAsia board at the time, and a number of others have been named in criminal conspiracy and money laundering cases. Fernandes has been summoned by the Enforcement Directorate on February 5. It is yet unclear whether Fernandes or AirAsia India will be part of the Tata-Singapore Airlines alliance’s bid for AI; the cases against him could be an issue.
This is not the right economic climate to sell AI since it will be a garage sale. None of the investment companies may be willing to make any major commitment to India currently in a market where domestic consumption has dropped significantly.
A document showed March 17 as the deadline for submission of initial expressions of interest, and that any bidder must assume liabilities, including debt of 232.87 billion rupees ($3.28 billion).
A successful bidder would win control of Air India’s 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas.