A large part of this debt is for aircraft that Air India purchased, which are backed by sovereign guarantees which will end when it is sold.

An Air India plane on the tarmac
Money Aviation Tuesday, September 15, 2020 - 17:14

The government has been struggling to find a buyer for Air India for a while now, but as per reports, it is mulling dropping a condition that the buyer will have to take on Air India’s debt. The government is considering absorbing a large chunk of the national carrier’s debt. Air India has a debt of around Rs 23,286 crore. 

Business Standard reported that a large part of this debt is for the aircraft bought by the carrier, which are backed by sovereign guarantees which will end after the carrier is sold. 

This also comes at a time when the aviation industry has been severely impacted by the pandemic, which would make this sale even harder. According to the report, absorbing the debt has been proposed by sale process advisor EY, and the group of ministers in charge of the sale have to take a call in the coming weeks. 

This group consists of Home Minister Amit Shah, Finance Minister Nirmala Sitharaman, Railways Minister Piyush Goyal and Civil Aviation Minister Hardeep Singh Puri. 

“The global aviation industry is on the pause. In such a situation, getting an investor is turning to be difficult. There have been internal deliberations of what can be done for the sale process to go through,” an official told the business daily. 

Bloomberg reported that the government is being advised to drop the rule as they are worried that it will deter buyers. The report said as part of the new proposition, interested buyers may be allowed to bid on the enterprise value and not the entity value.

Air India has not had profits since 2007. 

Air India has been passing through a critical financial condition from much before the Covid-19 onslaught.

The government extended the time for bids to buy the airline for the fourth time last month, extending the date to October 30, 2020. 

While issuing the Expression of Interest (EoI) in January, the last date for bids was kept at March 17, which was later extended to April 30. This was further extended till June 30, and again till August 31, and then to October 30.

After its unsuccessful bid to sell Air India in 2018, the government in January 2020 restarted the divestment process and invited bids for selling 100% of its equity in the state-owned airline, including Air India’s 100% shareholding in AI Express Ltd and 50% in Air India SATS Airport Services Private Ltd. In 2018, the government had offered to sell its 76% stake in the airline.

Of the airline’s 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), a special purpose vehicle. This is what has been proposed to be reduced.

The Tata group is reportedly looking at bidding for the airline. 

With inputs from agencies

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