Air India privatisation: Bidding deadline likely to be extended to Dec 15

 The government is likely to extend the deadline for submission of bids for privatisation of Air India yet another time till December 15.

The last date for submission of bids is October 30.

Earlier, while issuing a corrigendum to the bid documents, the Department of Disinvestment (DIPAM) in the Finance Ministry said that in view of the requests received from the interested bidders and the prevailing situation due to Covid-19, the date has been extended to October 30 from August 31.

The government is also trying to sweeten the deal by allowing flexibility on the debt component of Air India. There is talk on giving investors the flexibility to decide on the high debt of the airline. The flexibility if it comes will replace the current condition of the buyer taking over more than a third of the debt and transferring the rest to a special purpose vehicle.

Some potential investors have sought flexibility and asked that the debt should not be fixed at the stage of the bidding.

The government has been trying to sell Air India for the past few years. According to a report by financial services house, HSBC, previously, when the government tried to sell Air India, the terms and the shape in which government wanted to sell Air India were not sufficiently attractive to any of the potential buyers. Hence the government has sweetened the deal this time and has decided to be more flexible with the terms.

First of all, the government is ready to sell a 100 per cent stake in Air India (previously, it was selling only 76 per cent which was a sticking point for potential buyers as the fear of continuous government intervention deterred many potential buyers).

In addition, the government has shifted almost 60 per cent of the total debt to a SPV. Total debt on Air India's balance sheet stood at $8 billon, but the government has transferred $5 billion of debt to a SPV and the buyer will have to absorb $3 billion of debt, most of which is aircraft-related.

Airlines globally are under financial stress with tourism and hospitality along with aviation being the worst hit sectors.

Covid-19 impact: Missing disinvestment targets will have consequences

The economic travails this year will be challenging, and from the economist’s perspective, economic growth and fiscal deficit are the two main challenges. The government had embarked on a very ambitious disinvestment programme for the year of Rs 2.1 trillion. It sounded optimistic as we have never delivered such an amount before. The highest was Rs 1 trillion in FY18. The present programme includes the sale of Air India, Life Insurance Corporation of India (LIC) and Bharat Petroleum Corporation Limited (BPCL), which made this very aggressive target look possible.

For disinvestment to take place, there need to be a good number of buyers as well as valuation. Else, like in the past, divestment becomes an exercise of one public sector undertaking (PSU) buying into another. The challenge today is that the conditions do not look congenial and the market is just too volatile. The stock market has touched a new low post the announcement of a shutdown. There seems to be no sign of the shutdown ending or even a plan as to what should be done once this ends. Realistically speaking, FY21 will be a washout. The market is unlikely to reach the January levels anytime soon and unless it is moving in the upward direction continuously for three months, can one be assured that the valuation will be fair?

The other factor is the kind of disinvestment we are looking at. BPCL no longer looks as attractive with the price of oil below $30/barrel and the future of the sector being uncertain. A global recession is for sure, which means that oil prices will be depressed and the sale of such an enterprise will remain unattractive. Next, Air India has been on the block for some time now, and there is no clear plan about how to go about it given the overhang of debt which is around Rs 60,000 crore. To top it all, the future of the aviation industry is in jeopardy following the breakout of the pandemic as movement across countries will remain barred for at least six months after normalcy returns.

The domestic segment, too, looks static and it is doubtful if people will be willing to fly except under extreme conditions post the epidemic. In fact, with business getting used to conducting meetings through webinars, the cost saving involved in not travelling will make sense when India Inc is not expected to do well. Therefore, potential buyers would certainly not get in given the low prospects.

Lastly, LIC was to get in almost half of the targeted amount, which was always going to be a challenge when the Budget announced that the 80C section was going to be optional for taxpayers who could opt for the scheme where one could give up exemptions to join a system of lower tax rates. One can logically interpret this to mean that at some stage all the exemptions would go and insurance would be the last thing on a saver’s mind given that the returns are even lower than bank deposits and small savings.

ALSO READ: FY20 disinvestment mop-up at Rs 50,298 cr, govt misses budget target

Not meeting the target has severe challenges for the government and this is where growth comes in. An extended shutdown and lower growth means lower GST (the monthly target cannot be attained). That apart, it will lead to lower corporate, customs (ban on trade), and income (job loss) tax collections.

Overall tax revenue, including those to be transferred, was estimated at Rs 24 trillion and a now a 10 per cent fall cannot be ruled out. Add to this the low level of disinvestment and we can be looking at a shortfall of around Rs 2.5 trillion or so. The fiscal stimulus announced of Rs 1.7 trillion will add to the fiscal deficit further and the fiscal deficit ratio could be at 5.5 per cent.

The problem really is that any slippage in disinvestment combined with other revenue shortfall will mean that the government would have to rework some expenditure numbers, which could mean rolling over some of them. Minor cuts in salaries or MPLAD being withdrawn can contribute a little, but at the end of the day, borrowing will go up. This is probably the reason as to why the market is still skeptical despite the surplus liquidity in the system. The government would necessarily have to borrow more in the market, which will pressurize liquidity over time.

Covid-19 impact: Air India suspends contract of around 200 employees

Air India on Thursday temporarily suspended the contracts of around 200 employees including pilots, who were re-employed after retirement, as all domestic and international commercial passenger flights have been suspended in the country till April 14 to curb the COVID-19 pandemic, a senior official said.

"Since almost all the planes have been grounded and the carrier's revenues have taken a significant fall during the last few weeks, the airline has decided to temporarily suspend the contract of around 200 employees including pilots who were re-employed after their retirement," said the official.

The national carrier has already cut the allowances of all employees, except cabin crew, by 10 per cent for the next three months in order to save money amid the coronavirus pandemic.

According to the health ministry, death toll due to coronavirus touched 50 on Thursday. Total number of positive cases has risen to 1,965 in the country.

Air India avoids default; secures refinance loan to service Rs 700 cr NCDs

India's flag carrier, Air India averted a default and secured short-term funds to service Rs 700 crore worth non-convertible debentures (NCDs) due for redemption on Thursday, source told news agency PTI.

The debt-laden national carrier's operations and revenue flow have been hit by coronavirus outbreak, which has also resulted in suspension of domestic and international flights.

On March 23, India Ratings warned that Air India may default on the debt payment, given the poor cash flow position after the announcement of the country-wide lockdown along with the national airspace, till April 14th. Accordingly, the agency had on the same evening placed the instrument on rating watch with negative outlook.

On Thursday, an airline source told PTI that it has secured the needed amount from banks with government guarantee to pay interest to investors. However, how much money has been raised or the amount needed to pay, has not been disclosed.

A reply to a mail sent to an Air India spokesperson for confirmation is awaited.

 

ALSO READ: Coronavirus LIVE: Govt stimulus to cover 800 mn Indians amid lockdown

According to the source, Air India has secured short-term bank loans backed by government guarantee to refinance the entire principal amount of Rs 700 crore of NCDs. These debentures are due for interest payment or redemption on March 26.

The airline needs Rs 30 crore to pay the interest.

The issuer's account was not provided for the same as of March 25, according to IndiRa report. The amount was on rating watch negative since March 23, which reflects delays in funding the designated account as on March 23, as confirmed by the trustee IDBI Trusteeship Services.

Covid-19: Air India to incur Rs 30-35 cr loss per day after flying ban

Flag carrier Air India is expected to incur losses to the tune of Rs 30-35 crore per day following the suspension of operations in the wake of coronavirus pandemic, according to a source.

With stringent border controls across the countries to restrict movement of people, many countries have barred international flights in their territory amid COVID-19. India has also announced a temporary ban on flying.

"We will not be operating a single commercial flight along with other domestic carriers as per the government's order, yet our daily losses will still be in the range of Rs 30-35 crore.

"Though there will not be ceratin costs such as fuel, ground handling, airport fee during the suspension of oprations, we still will have to make payments towards salaries and allowances, lease rentals, mimimum maintenance, besides the interest payment, among others," the source told PTI.

Govt needs to infuse Rs 3,000 cr in Air India as sale to get delayed: CAPA

Air India cancels flights to Italy, France, Germany, three other countries

Air India has decided to cancel flights to Italy, France, Germany, Spain, Israel, South Korea and Sri Lanka till April 30, an airline official said on Friday, amid mounting concerns over coronavirus epidemic.

The move comes a day after the national carrier announced suspension of services to Kuwait till April 30.

Earlier, the airline curtailed services on most European routes, including Italy and France

"It has been decided to temporarily suspend services to Italy, France, Germany, Spain, Israel, South Korea and Sri Lanka due to the coronavirus outbreak," the official said on Friday.

On Wednesday, the government decided to suspend all visas, except a few categories such as diplomatic and employment, from March 13 to April 15.

Govt extends deadline to submit bids for Air India sale till April 30

The government on Friday extended the deadline for submitting bids for buying 100 per cent stake in Air India till April 30.

The deadline was originally set at March 17.

The government had allowed access to the “virtual data room” of Air India to interested bidders late in February and allowed them further time till March 6 to pose queries.

Home Minister Amit Shah-led ministerial panel on Air India decided on extending the deadline for submission of expression of interest (EoI) by interested bidders till April 30.

While extending the date, the Department of Investment and Public Asset Management (DIPAM) in a notification said “the changes are in view of the requests received from the IBs (interested bidders) and the prevailing situation arising out of COVID-19.”

In January, the government restarted the divestment process of Air India and invited bids for selling 100 per cent of its equity in the state-owned airline, including Air India's 100 per cent shareholding in AI Express Ltd and 50 per cent in Air India SATS Airport Services Private Ltd.

The government had on January 27 issued the preliminary information memorandum (PIM) inviting EoI for sale of 100 per cent stake in Air India.

On February 21, it issued the first set of clarification answering queries regarding the 'confidentiality undertaking'.

Interested bidders for Air India should have a net worth of Rs 3,500 crore.

After its unsuccessful bid to sell Air India in 2018, the government this time has decided to offload its entire stake. In 2018, the government had offered to sell its 76 per cent stake in the airline.

Of the total debt of Rs 60,074 crore as of March 31, 2019, the buyer would be required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), the special purpose vehicle.

With 6 airports already in folio, Adani turns to Air India

The Adani group, which has already won the bid to manage 6 airports, is now all set to join the race of acquiring the state-run airline - Air India. And for this, the conglomerate is planning to submit an expression of interest (EoI) by next month, disclosed a source close to the development.

However, the final decision depends on the outcome of the due diligence post submission of the EoI. Since, after the EoI process only prospective bidders will get access to airline data.

The Adani group is not the only one interested in this complex deal. The Tata group, the Hinduja group, Indigo and a New York-based fund, Interups, are also expected to submit their EoIs. The deadline of submitting the EoI is 17th March.

This is the second attempt made by the Centre to sell the airline after it failed to receive interest in the first round last year.

As a matter of fact, sale of Air India to a private player is important for the central government as it has had to pump in Rs 30,000 crore of tax payer’s money into the airline since 2012. The airline, however, has not made money since the merger of Air India and Indian Airlines in 2007.

Apart from Air India, the government has also offered to sell Air India Express and its 50 per cent stake in Air India SATS Airport Services.

Therefore, they have come up with changes like relaxation of various norms, including clearing of the balance sheet, transfering of remaining portion to the special purpose vehicles, introduction of minimum shareholding of an investor and much more to ensure success this time.

Despite this, things are not easy for the Adani group as, according to the bid criteria an airline or a group owning an airline cannot own more than 27 per cent in the six airports that are already with the Adani group.

A similar clause restricting airlines or group owning airlines from owning more than 10 per cent in Delhi airport recently resulted in collapse of the Tata-GIC group’s investment in GMR.

A banker, close to the sale process of Air India, said the present rules will not bar the Adani group from bidding for the airline. “We want as many companies to bid for the airline as it is a good asset after Rs 30,000 crore of debt was removed from the airline along with the government’s offer for 100 per cent stake,” said the source.

According to present aviation sector norms, foreign airlines can bid but can only acquire a maximum of 49 per cent stake due to sectoral caps on foireign direct investment.

Air India and its subsidiary, Air India Express had about 120 aircraft at FY18-end and 126 aircraft till September last year. Its fleet has both narrow-body aircraft from Airbus and wide-body planes from Boeing, making it simpler for ...

Air India's disinvestment will not face any problems this time: Puri

Air India's disinvestment will not face any problems this time as the interest shown by prospective buyers has been reassuring, Aviation Minister Hardeep Singh Puri said on Monday.

He said the government wants Air India to keep flying as a brand for years to come.

The minister also assured the employees at Air India that their requirements would be foremost in the airline and factored in whatever arrangement is decided with the successor.

In the Preliminary Information Memorandum issued a few weeks ago for Air India's stake sale, the government had stated that the brand name would have to kept as it is by the future owner.

"The strongest support that you have on your future comes from the government. We not only want to keep Air India flying as a brand but we want to ensure that continued operation will end the uncertainty of last many years," Puri said at an event here.

The fact that Air India has been facing financial challenges is not something that is unknown, he added.

"I don't think anyone can run an airline without the people that actually make it," Puri said.

"Somebody asks what will happen to the staff. The staff will be required by whoever will be the new entity managing or owning it. There has been no recruitment for how many years. There is no surplus staff," he said.

"Don't ever be under the impression that this time around, there will be any problems (in disinvestment). There will not be. The amount of interest I am seeing in the acquisition and the quarters from where I am seeing it, I am reassured," he added.

Various employee unions of Air India in the last few months have expressed uncertainty about their future as the government has moved ahead with the stake sale plan.

"Whoever are the eligible bidders, the requirement of the staff the people who run the airline would be foremost," the minister said.

Addressing the concerns of employees, he said, "Your good work is not only being appreciated but will also be factored into the successor arrangement which will come in after this.

Air India sale: Entities can bid based on affiliates' financial strength

Entities can bid for national carrier Air India on the basis of the financial strength of their affiliates, a proposition that could attract more bidders.

In its second attempt in as many years to divest loss-making Air India, the government came out with the Preliminary Information Memorandum (PIM) on Monday.

The government has proposed selling 100 per cent stake in Air India along with budget airline Air India Express and the national carrier's 50 per cent stake in AISATS, an equal joint venture with Singapore Airlines.

As per the PIM, a bidder may also "qualify on the basis of net worth of its affiliate, provided such IB (Interested Bidder) itself has a positive net worth...," subject to certain conditions.

This means that an entity can bid based on the financial strength of its parent, according to a source involved in the disinvestment process.

Such a provision could also help in attracting more bidders.

In case an IB is taking the benefit of financial strength of its affiliate, then the net worth of only the affiliate would be used for the purposes of evaluation of financial capability of the IB, as per the PIM.

To make the disinvestment more attractive, the government has eased the bidding norms. Prospective bidders now need to have a minimum of Rs 3,500 crore net worth.

In 2018, when the government tried to divest Air India, the net worth criteria was fixed at Rs 5,000 crore.

Meanwhile, the source said that complete foreign ownership of the national carrier would not be possible.

Under the Foreign Direct Investment (FDI) norms, the Substantial Ownership and Effective Control (SOEC) framework and provisions in the bilateral agreements, it would not be practical for Air India to have 100 per cent foreign ownership, the source said.

Through the automatic route, a foreign investor or an airline can have up to 49 per cent stake in an Indian carrier. The limit can be 100 per cent under approval route but would not be applicable for overseas airlines.

In the case of Air India, only 49 per cent FDI is allowed through the approval route, the source said.

As per the SOEC framework, which is followed in the airline industry globally, a carrier that flies overseas from a particular country should be substantially owned by that country's government or its nationals.

In the case of Air India, the government has signed bilateral flying rights agreements with more than 100 countries. As per these pacts, flying rights would be given to carriers that are substantially owned by the Indian government or Indian nationals, the source said.

According to the source, in case the substantial ownership of the carrier is to be changed, then all these pacts would have to be renegotiated. In such a situation, the countries concerned might also ask for increased bilateral flying rights, the source added.

Bilateral flying rights refers to an agreement between two countries that allows each other's airlines to operate services with a specific number of seats.

Among others, the government would withdraw its guarantee extended to loans taken by Air India.

"Government of India (GOI) may prescribe additional conditions (including but not limited to replacement of all GOI guarantee or other GOI support extended on behalf of the companies) in the Request for Proposal (RFP)," the PIM said.

Qualified Interested Bidders (QIBs) would be required to demonstrate availability of funds for the proposed transaction "including but not limited to appropriate expression of support from financial institution(s)... confirming ability of the IB to discharge all its obligations defined under RFP and definitive documents related to the proposed transaction," it noted.

The successful bidder would have to take over only debt worth Rs 23,286.5 crore while the liabilities would be decided depending on current assets at the time of closing of the transaction. Air India is in the red for long.

Coronavirus: Air India jumbo plane ready for evacuating Indians from Wuhan

Flag carrier Air India has kept one of its 423-seater jumbo plane ready in Mumbai for the evacuation of Indian citizens from Wuhan province in China in the wake of Cornovirus outbreak in the East Asian country, an official source said on Tuesday.

The airline is awaiting necessary approvals from the ministries of External Affairs and Health to operate the special evacuation flight, the source said.

The decision follows the government instructions to various ministries to take steps to deal with the issue.

"We have kept a Boeing 747-400 ready in Mumbai to operate an evacuation flight to China whenever we get a go ahead from the government," the source said.

Some 250 Indians are to be evacuated, the source said, adding, "we are awaiting clearances from Ministry of External Affairs and also from Health Ministry. The Health Ministry's nod is required because the operating crew has to fly in a virus outbreak territory."

At the Cabinet Secretary meeting on Monday,the government decided that steps may be taken to prepare for the possible evacuation of Indian nationals in Wuhan.

Coronavirus is a large family of viruses that causes illnesses ranging from the common cold to acute respiratory syndromes, but the virus in China is a novel strain and not seen before.

The outbreak has caused alarm because of its similarity to SARS (Severe Acute Respiratory Syndrome).

Accordingly, Ministry of External Affairs will make a request to the Chinese authorities while the Ministry of Civil Aviation and Ministry of Health will make arrangements for transport and quarantine facilities respectively, an official release had said on Monday.

Government also asked the Civil Aviation Ministry to issue instruction to airlines for managing and notifying anybody reporting illness on all direct and indirect flight to China besides facilitating in-flight announcements and distribution of health cards to all flights with direct or indirect connectivity to China.

Officials said Ministry of External Affairs will make a request to the Chinese authorities for evacuation of Indian nationals, mostly students, stuck in Wuhan city.

"It was decided that steps may be taken to prepare for possible evacuation of Indian nationals in Wuhan. Accordingly, Ministry of External Affairs will make a request to the Chinese authorities," a government statement said.

Wuhan along 12 other cities have been completely sealed by the Chinese authorities to stop the virus from spreading. The death toll climbed to 80 with 2,744 confirmed cases.

Over 250 to 300 Indian students are reportedly stuck in Wuhan triggering concerns over their well-being.

Air India divestment process finally takes off, with sweetened deal terms

Almost two years after a failed attempt, the government on Monday launched the biggest privatisation exercise in value terms, inviting preliminary bids for Air India with sweetened deal terms. Full management control, reduced debt, a leaner organisation and flexibility to form a consortium are among the relaxed terms on offer for Air India divestment as potential bidders weigh their options to buy what was once a national asset.

According to the bid document, the government would divest its entire stake in the state-owned airline and subsidiary Air India Express, along with its joint venture Air India SATS Airport Services. The Air India brand will, however, have to be retained by the new owner.

“After no bids were received last year, we analysed critical scenarios and worked diligently to make it more attractive this time,” Civil Aviation Minister Hardeep Singh Puri said.

The government has announced it would absorb 30 per cent more in debt and liabilities, than in the previous year. With that significant change, the government will pass on Rs 23,286.50 crore to the new owner, while absorbing a huge chunk of the current liabilities. Of around Rs 22,000 crore of liabilities, the new owner will have to absorb only those which are backed by assets.

“Out of the balance liabilities, other than debt, certain identified current and non-current liabilities that are equivalent to sum of certain identified current and non-current assets, are proposed to be retained in Air India and Air India Express, as on date of the closing of the proposed transaction,” the sale document said.

Sources involved in the sale process said Air India’s fixed assets had increased by over Rs 3,000 crore from Rs 27,000 crore in 2018. “Almost 56 per cent of the total fleet of Air India is owned by the airline. The new owner will be able to do sale and lease back of those aircraft, further reducing the debt,” the official pointed out.

The reduction in debt and hence, interest costs, will be about 61 per cent under the new terms, as against 35 per cent in March 2018 during the government’s previous effort to sell Air India.

Disinvestment or DIPAM Secretary Tuhin Kanta Pandey pointed out that assets of Air India were equivalent to the assets of the airline and no liabilities in excess of assets would be passed on to the new owner.

“All mergers and acquisitions take place with the theory that equivalent liabilities and assets are passed on to the buyer. In this case also, we have ensured that the government will take over excess liabilities not backed by assets. There is a fair amount of certainty this time,” Pandey said.

In a departure from the past, the government has finalised the terms and conditions as well as the duration for which the new owner has to retain the employees. Even so, officials pointed out that employees will not be a bone of contention for buyers, as Air India has employees proportional to the size of the operations. Air India has 133 employees for each aircraft against 136 in the case of Singapore Airlines. “Anybody and everybody willing to operate such a large airline will require the manpower. I can assure that Air India has no excess employees,” the airline’s chairman and managing director Ashwani Lohani pointed out.

chartThe government’s willingness to bite the bullet in giving up management control and absorbing debt sends out a positive message to the investor, experts believe. “This is a big and bold decision from the government. We expect significant interest as government has been able to structure a very attractive offer,” Kapil Kaul, CEO, South Asia at aviation consulting firm CAPA, said.

But potential bidders were hesitant to commit so early. Major Indian and global airlines did not offer any comment on their interest in Air India.

However, there are hurdles. An executive of an Indian airline pointed out that one reason why the deal may not go through is that investors may find it difficult to absorb such a large entity in one go. “Even if debt has been absorbed, the capability to service debt of Rs 23,000 crore from revenue of operations will be a big ask. The new owner has to significantly improve the airline’s performance. A very difficult deal I would say,” he said.

However, civil aviation minister Hardeep Singh Puri indicated that the government had better communication with bidders this time and is willing to change some terms depending on suggestions. “Last time, the government was very cautious as we were approaching an election. This time we are ready to take bold steps under home minister Amit Shah. I’m sure Air India will find a new home,” he said.

Air India sale: Sweeteners galore for the bidders in govt's new EoI

After a failed bid to sell of India’s national airline Air India in 2018, the Modi government has issued a new expression of interest (EoI) on January 27, 2020. The new terms inviting bids are considerably lenient than the previous ones and have caused consternation in various circles. The Bharatiya Janata Party (BJP)'s Subramanium Swamy has likened the new terms as an attempt “to sell the family silver” and has threatened to challenge the new EoI legally.

The Modi government wants to sell Air India, Air India Express and Air India SATS (AISATS). This time the government has proposed to sell the entire airline which is completely owned by it. In 2018, it had proposed to sell a 76 per cent stake. Like before, it would sell a 100 per cent stake in Air India Express and its entire stake of 50 per cent in AISATS, which it jointly owns with Singapore's Changi Airport.

While this may sweeten the deal for prospective bidders, a lot more carrots have been dangled this time to make Air India’s strategic sale even more enticing. In 2018, the government hadn’t received any bids for Air India with many bidders wary of its intention to hold a minority stake in the national carrier. There has been a considerable relaxation of net worth norms for sole bidders and consortiums. Under the new EoI, the minimum net worth required to be eligible for bidding has been reduced to Rs 3,500 crore from Rs 5,000 crore in the previous round. Now companies can also bid on the basis of the net worth of their affiliates, which was non-existent earlier. The provision to bid on the strength of the net worth of affiliate companies is allowed only for foreign entities and not to Indian scheduled airline operators.

It isn't just sole bidders, but also consortiums which have been given more leeway this time around by the Modi government. In 2018, each member of a consortium was required to hold a 20 per cent stake in it. This time, the minimum shareholding in a consortium for a member has been reduced to 10 per cent which could potentially lead to bigger and financially stronger consortiums to enter the fray. What could further strengthen the participation of bigger consortiums is reduction of minimum shareholding of the lead member in the consortium from 51 per cent to 26 per cent. These measures along with relaxation of net-worth requirements from Rs 5,000 crore to Rs 3,500 crore, could provide consortiums a bigger advantage over lone bidders once the selection process kicks off on March 17 following receipt of all EoIs.

The eligibility norms have also been tweaked given the doldrums in which India’s aviation industry and its economy finds itself in. Now the prospective buyers can sell off Air India after one year of buying it, as compared to a lock-in period of three years earlier. Stakes can still be sold within a year with permission of the central government. Moreover, the government seems to have completely done away with the profitability clause in the 2020 EoI. Earlier, bidders were required to clock profits in at least three of the preceding five financial years from the time of bidding for Air India.

A cherry on the cake for Air India’s employees is the new requirement to give three per cent of the stake in the airlines to permanent employees – a clause that was missing in 2018. There could be some impact of this employee stock ownership plan (ESOP) on prospective bidders given the huge number of permanent employees on Air India’s rolls. There were 9,426 permanent employees in Air India in 2019, down by almost 1,800 employees over the last two years. A third of these permanent employees would be retiring by 2024, which could potentially mean attractive benefits in form of ESOPs for some of them. Almost a third of Air India’s employees are pilots, co-pilots and cabin crew. There were over 13,000 employees, including permanent and contractual on the national carrier’s rolls. While Air India’s permanent employee strength declined, those of its subsidiary, Air India Express, increased from 96 to 191. Permanent employees of Air India Express, which flies to Middle East and South East Asian destinations, consist primarily of its pilots and co-pilots. All other personnel including its cabin crew are contractual workers. There are no permanent employees in AISATS, the airline’s cargo and baggage handling arm. In effect, much of the three per cent stake for permanent employees may go to Air India staff instead of the other subsidiaries which have been put on sale.

Between these two attempts at selling Air India, the airline has marginally improved its operating parameters which could also make it more attractive to prospective buyers. Its fleet strength has marginally increased by six planes to touch 121 aircraft. It flies to two more domestic destinations in 2019 than it did in 2017. Both its domestic and international routes and departures have grown. Among Indian carriers flying internationally, it commanded a market share of 43 per cent in 2017. In 2019, it lorded over half of it. Even when foreign airlines are included, Air India has improved its international market share even as its domestic market share has literally stagnated. The airline has expanded its international slots in Europe including at crucial airports like Heathrow. Official statistics show that it has also expanded its slots in the Middle East including adding new ones at Doha and Al Najaf which will be part of sale package. Air India’s debt, which stood at Rs 58,283 crore in 2018-19 has already been hived off into a special purpose vehicle with the buyer not required to service the same.

Air India bidders to have access to all records of airline in initial stage

Potential bidders for Air India will have access to draft share purchase agreement and all records of the airline in the initial stage of the disinvestment process itself, according to a bid document.

Besides, a due diligence report about the airline would be provided to potential bidders before the request for proposal (RFP) stage.

Generally, access to all data records and draft share purchase agreement (SPA) are provided to bidders put in their interest after the preliminary information memorandum (PIM) stage.

The government on Monday came out with the PIM for 100 per cent disinvestment of debt-laden Air India as well as sale of Air India Express and 50 per cent shareholding in equal joint venture AISATS.

An official in the know said the legal and technical aspects of various contracts would be looked at during the due diligence process.

The government would soon be appointing a technical and a legal advisor for carrying out the due diligence.

Entities seeking access to "data room" and SPA would have to deposit Rs 1 crore.

The last date for submitting expression of interest (EoI) is March 17 while the last date for queries related to the disinvestment is February 1.

In 2018, the government had proposed to offload 76 per cent equity share capital of the national carrier as well as transfer the management control to private players. However, there were no bidders.

Govt announces plan to sell entire stake in Air India, sets terms for sale

The government said India said on Monday it plans to sell its entire stake in Air India, in a revised push to sell its national carrier after an initial attempt to sell a majority stake in the airline failed to draw a single bid in 2018.

A document inviting expressions of interest in Air India, released on Monday, said the government would sell a 100 per cent stake in the carrier, which operates both domestic and international routes.

The document set March 17 as the deadline for submissions of initial expressions of interest and said any bidder would have to agree to assume roughly $3.26 billion in debt, along with other liabilities.

The government said that substantial ownership and effective control of Air India would have to remain vested with an Indian entity following the sale, limiting the scope of any foreign bidders interested in the asset. In 2018, India had tried to sell a 76% stake in Air India and offload about $5.1 billion of its debt, terms that potential buyers at the time viewed as too onerous.

Air India, known for its Maharaja mascot, has some of India's most lucrative international and domestic landing and parking slots that are key for airlines.

Air India sale ready to take off: GoM okays EoI, share purchase agreement

People in the know said a proposal to transfer additional debt and liabilities of around Rs 10,000 crore each would be absorbed by the government, to lighten the burden for prospective buyers. “An in-principle approval has been given to hive off a portion of additional debt and some liabilities like dues to oil companies and airport operators as well as pending salary dues and benefits to permanent and retired employees…,” a second official said.

chartAs of FY19, Air India had assets worth Rs 28,000 crore and liabilities estimated at Rs 22,000 crore, primarily dues to vendors such as airports and oil companies and short-term working capital loans.

Out of a total debt of Rs 58,000 crore, the government has already transferred Rs 29,500 crore to the special purpose vehicle Air India Asset Holding. Now, another Rs 10,000 crore of debt hive off has been approved, leaving the bidder with Rs 18,500 crore of debt.

Sources said IndiGo, Vistara, AirAsia India, major global airlines like International Airlines Group (which owns British Airways and Aer Lingus), as well as sovereign and private global funds, such as Temasek, KKR, and Warburg Pincus, have attended roadshows organised by EY—an advisor to the process. EY, along with the Department of Investment and Public Asset Management, has held five roadshows in Mumbai, Singapore, and London to drum up investor interest.

A private owner will not enjoy the comfort of sovereign guarantee with banks, which the airline currently has because of government ownership, he pointed out. “Banks will be more cautious when allowing a private company to carry that much debt,” the executive said, pointing out that with Jet Airways belly up, there’s a void in connecting the country with long-haul destinations.

The new owner would also allow merger or reverse merger of Air India with any existing business of the buyer — a change from last year’s norms where it was made mandatory for a bidder to operate Air India at arm’s length from its other business till the time there was government shareholding in the company. This would help a potential suitor like Tata Sons, which has two airline companies — Vistara and Air Asia India — to merge Air India with the existing airline.

Pilots' union of Air India calls for vote on strike and insolvency

Pilots of Air India will hold a secret ballot to decide whether to strike or take the cash-strapped airline to bankruptcy court to get their dues, the Indian Commercial Pilots Association (ICPA) told its members on Tuesday.

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“In spite of requests to clear our illegally withheld 25 per cent dues, there seems to be no intent to clear the dues immediately. We are being treated like bonded labour by not waiving off the notice period while not paying our salaries, flying allowances and International layover allowance in time,” ICPA said. It said it did not trust “any verbal commitments” as it had had several experiences, where even written agreements had been interpreted wrongly. A strike can be declared only after giving 14 days' notice to the employer. ICPA said the strike call would be taken after the secret ballot, “provided two-thirds of members of the respective regions vote for the decision to strike”. However, it said whether to approach NCLT would be decided by a simple majority vote. “The date of polling will be intimated by respective regional (chapters),” it said.

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Rumours about Air India's shutdown are baseless, says Ashwani Lohani

Air India chief Ashwani Lohani on Saturday said that "rumours" of the disinvestment-bound airline's shutdown are "all baseless", weeks after he told the Civil Aviation Ministry that the carrier's financial situation was "grossly untenable" for sustaining operations.

"Rumours regarding Air India shutting down or closing operations are all baseless. Air India would continue to fly and also expand and there should be no cause for concern whatsoever to travellers, corporates or agents. Air India the national carrier is still the biggest airline of India," the Air India Chairman and Managing Director tweeted.

In a letter to the ministry last month, he had said, "It also needs appreciation that the overall financial situation is grossly untenable and the airline may not be able to sustain physical operations in the absence of immediate government intervention and support that we have been repeatedly requesting for in the recent past.

Without buyer, Air India might be forced to shut down by Jun 2020: official

Struggling Air India might be forced to shut down by June next year unless it finds a buyer as "piecemeal" arrangements cannot be sustained for long, according to a senior airline official.

Amid continuing uncertainty over the fate of the national carrier, the official said there is also need for funds to restart operations of 12 grounded narrow-body planes.

The airline has a debt burden of around Rs 60,000 crore and the government is still working on the modalities for the disinvestment.

Sounding alarm bells, the official said Air India might well go Jet Airways way if a prospective buyer does not come on board by June next year.

With government leaving the debt-ridden airline to fend for itself by refusing to inject funds any more amid its privatisation plans, the airline is "some how" keeping it afloat with peace meal arrangements, which are unlikely to sustain for long, the official said.

As per the government, it has infused funds to the tune of Rs 30,520.21 crore in the flag carrier from financial year 2011-12 till December this year.

Under the turnaround plan approved by the UPA regime in 2012, the airline was to get financial assistance of Rs 30,000 crore over a 10-year period.

"We had sought Rs 2,400 crore sovereign guarantee to mop up funds for meeting operational requirement. But the government has provided guarantee only for Rs 500 crore.

"We are some how managing the operations at present and at best we can sustain this situation till June. If a buyer does not come by that time, we will have to shut shop," said the official on condition of anonymity.

After more than 25 years of flying, full service carrier Jet Airways shuttered operations in April due to cash crunch.

In 2018-19, Air India's net loss is provisionally estimated to be Rs 8,556.35 crore.

Besides, it has a total debt of Rs 60,000 crore, half of which has already taken out of the books and parked in the special purpose vehicle, Air India Asset Holding Ltd.

Air India spokesperson was not available for comments.

The Air India Specific Alternative Mechanism (AISAM) has approved re-initiation of process for the the government's 100 per cent stake sale in Air India along with Air India Express and the carrier's stake in joint venture AISATS.

The government is likely to issue Expression of Interest (EoI) for the stake sale in the fourth quarter of the fiscal.

According to the official, it would take "at least" six months to complete the transaction in the eventuality of an investor coming on board, provided the sale process kick starts early next month.

At the same time, the official did not sound very hopeful of the government getting an investor in such an "economic situation," which has also affected the domestic aviation industry.

Domestic air traffic, which is one of the parameters for gauging the health of the industry, grew only 3.86 per cent in the January-November period of the year as against an impressive 18.60 per cent growth in 2018.

Response to the recent road shows in Singapore and London for Air India disinvestment was reportedly "tepid".

The official said that currently 12 narrow-body Airbus A320 planes are on the ground for want of engine replacement and are unlikely to be back in operations in the immediate future.

"We need at least USD 150 million (about Rs 1,100 crore) to get new engines for these 12 planes. With adequate funds not available even for normal operations, it looks difficult we will get funds for engine replacement and make these planes operational any soon," the official said.

However, the official said that seven of the eight wide-body planes, which were grounded for engine and other engineering related issues, are back in operations. The eighth one is expected to start flying soon.

"We plan to deploy this to cater to to the new Mumbai-Stansted (London region) route, which we are looking to launch from February next year,' he said.

The new route would have three times per week services and bookings would open soon.