The Centre on Thursday revised bidding parameters for 100% stake sale in Air India, allowing private players to quote an enterprise value (EV) for the airline.
Before taking the decision, the government also contemplated on shutting down the airline due to failure in attracting buyers for the disinvestment process, which was first undertaken in 2018.
This is the government’s third effort to woo buyers. After tasting defeat in 2018, in January this year, the government floated a second proposal to sell the airline, offering to exit the airline completely and waive nearly half the debt — ₹29,000 crore of the total ₹60,000 crore debt. It had offered its entire stake in Air India, its low-cost international arm Air India Express, and ground handling arm AISATS.
“There has been a total change in the aviation environment and a large number of airlines are struggling,” Secretary of Ministry of Civil Aviation P.S. Kharola said at a press conference.
“The way we had packaged the Air India sale, we felt players may not evince interest,” he added.
Bidders will be given seven days to pose queries on the new bidding parameters after which they can submit their bids by November 14. The government will announce the qualified bidder by December 28, Minister of State for Civil Aviation Hardeep Puri said.
This is the sixth time since January that the government has extended the deadline due to lack of interest from prospective buyers.
“Enterprise value shall mean combined value of debt and equity of AI as assessed by bidder in its financial bid,” DIPAM Secretary, Tuhin K. Pandey said.
“The only change is that there is no pre-determined debt. This doesn’t mean that Air India sale will be debt-free, but that the debt will be determined in the market,” Mr. Pandey said.
“The change is because of uncertainty in the market. Enterprise value will be discovered in the market through the bidding process. We are unshackling the process,” he added. He said that this process would not change the valuation of the airline.
Officials said that with the passage of time and due to COVID-19, Air India’s losses have increase and fixing the debt at any level would reduce the universe of bidders. Various inter-ministerial consultations also discussed the option of shutting down the airline permanently because of mounting losses and lack of interest from private players. “Retaining the airline is equally costly as it has been accruing losses of ₹500 crore per month, and shutting it down will cost ₹40,000 crore.”
To a question on what checks and balances the government would exercise to ensure the airline was not grossly undervalued, a senior government official said that there would be a reserve price that would be announced after the bids had been submitted and before they were opened.
The selected bidder will have to submit cash amount of 15% of enterprise value, and have the remaining share of debt transferred to its name.
Since March 31, Air India has accumulated a debt of ₹8,000 crore over and above its earlier debt of ₹60,000 crore.
Fare bands extended
The government has extended the mandatory fare bands airlines can levy on a specific route, until February 24.
The fare bands, which include a pre determined minimum and maximum fare airlines can charge, were first introduced from May 25 after the government allowed airlines to resume domestic flights.
Most airlines, barring a few that are cash-starved, have opposed the move on the ground that it prohibits them from stimulating demand. During a festive season this is likely to be a further setback.