Air India privatisation: At least 6, including Lufthansa and Etihad, in race for Maharaja

Though there is no official word yet, estimates suggest that AI is making a daily loss of over Rs 30-35 crore during the pandemic due to virtual grounding of the airline, up from about Rs 20-26 crore in December 2019.

At least half a dozen entities including Hinduja Group, Germany’s Lufthansa, the UAE’s Etihad Airways, Singapore Airlines and the Tata Group may throw their hats in the ring, as the government has expedited the process to sell sick, state-owned airline Air India (AI), sources privy to matter said.

Several steps are being taken to lure the buyers including putting in a place a plan to trim the airline’s 9,400-strong workforce expeditiously.

Logistic issues due to travel restrictions imposed in the wake of Covid-18 have forced the Department of Investment and Public Asset Management (DIPAM) to extend the expression of interest (EoI) submission deadline multiple times. A call would taken next week if it needs to be extended further from August 31, the sources added.

A large number of queries on AI have been received from interested parties and other stakeholders including Lufthansa and Singapore Airlines despite Covid-19 casting a shadow on the aviation sector, which is one of the worst affected globally, one official said.

While NRIs have been allowed to own 100% in AI, the government has retained a provision that substantial ownership and effective control of the airline must remain with an Indian entity. That means, foreign investors/airlines, which can own up to 49%, would have to team with an Indian partner to bid for AI.

With losses further mounting in the aftermath of Covid-19 outbreak, Air India recently decided to send some unspecified number of employees on ‘leave without pay’, mirroring a recent global trend to cut costs as planes have been grounded due to pandemic. According to a scheme approved by the board of directors in its meeting held on July 7, the AI CMD can send an employee without pay ranging from six months or for two years and the same can be extended up to five years.

In any privatisation, employee issues of state-owned firms are of concern to buyers due to high employee costs and low productivity, typical of a government sector firm. While the share purchase agreement (SPA) agreement will provide that strategic buyer shall not retrench any employees of the company for a period of one year, the move to authorise the CMD to send employees on leave for five years, could address potential buyer’s concern manpower to some extent.

Though there is no official word yet, estimates suggest that AI is making a daily loss of over Rs 30-35 crore during the pandemic due to virtual grounding of the airline, up from about Rs 20-26 crore in December 2019.

AI’s employee cost was around 11% of the total revenue receipts in FY19. Interestingly, the employee cost to revenue ratio was 11% for Indigo, 15% for Singapore Airlines and 19% for Lufthansa, according to AI’s preliminary information memorandum (PIM). As on November 1 last year, AI employed 9,426 people (excluding contractual and casual workers), 36% of which will retire by FY24.

Along with AI, the government is also offloading its 100% stake in its low-cost subsidiary, Air India Express (AIXL) and 50% of AISATS, which provides cargo and ground handling services at major Indian airports. The debt of AI and its low-cost subsidiary is being reduced by the government to around Rs 23,286 crore (to be taken over by potential buyer) from Rs 60,000 crore as on March 31, 2019. Additionally, the national carrier and its subsidiary have liabilities worth Rs 25,000 crore. Of this, the buyer would have to take over only Rs 9,700 crore. This way, the buyer would have to take over asset-backed debt and liabilities worth Rs 32,986 crore or only 39% of the total debt and liabilities of Rs 85,000 crore.