The Centre will reportedly take over an additional Rs 20,000 crore from Air India’s books.

Govt likely to make Air India debt-free before selling itImage: Alan Wilson via Flickr (CC BY-SA 2.0)
Money Air India Monday, October 14, 2019 - 18:35

Even as the Air India management will be meeting with the employee unions over privatisation, comes the news that the government may make it much easier for prospective investors by making the airline debt-free, reports Financial Express. The high level of debts in the books of the national carrier would have deterred any keen investor from taking over Air India.

Ernst & Young, the agency appointed to act as the transaction adviser has submitted a detailed report on why there were no takers last time. Those will be factored in while going through the process now.

In fact, there are reports that the government plans to include a draft of the Sale & Purchase Agreement along with the expression of interest document. This will ensure more transparency and the investors may feel confident that there won’t be many shocks later.

Coming back to the debts, the total debts the airline was carrying was of the order of Rs 70,000 crore. Through its earlier absorption of part of this debt the government had taken a few steps. The debt, as it stands now, is reported to be Rs 20,000 crore and this amount too, will be lifted off the airline’s books before it is offered for takeover by private entities.

The wide expectation from the aviation industry experts is that a foreign airline may join hands with an Indian company, possibly from within the industry, to bid for Air India. The main reason behind this is that the foreign airline cannot own more than 49% in any Indian aviation company. It is doubtful if a domestic airline can raise the kind of funds to take over Air India at this juncture.

The biggest attraction for any investor will be the 128 aircraft being operated by the airline, 70 owned and the rest on lease. The owned fleet includes wide-body Boeing 787-800 Dreamliners.

The other important factor will be the premium bilateral rights both flying and landing that Air India has up its sleeve. These are spread over several airports worldwide and within the country. There are parking slots also available for the carrier, one of the oldest in the business. These are assets for an airline and can be valued and added to the price the government may have in mind for passing on the ownership.

For the government, this disinvestment of 100% in Air India is critical from many angles. Keeping the airline afloat is costing the exchequer heavily. Already the amounts sunk by the government in the airline over past seven years exceed Rs 30,000 crore. The disinvestment target for 2019-20 of Rs 1,05,000 crore cannot be achieved without selling Air India.  

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