Air India sale: Aviation think tank Capa expects participation from global airlines for national carrier

Mumbai: Aviation think tank CAPAa expects a few global carriers, including a few from the Gulf, to bid for the national carrier Air India (AI). Air India represents an attractive opportunity for investors if it is relieved of its working capital debt, which stands around Rs 30,000 crore, the Centre for Asia Pacific Aviation (Capa) said in a report Wednesday. “Interest is likely to be strong this time around. We do not rule out the possibility of some leading global carriers–including those from the Gulf–participating in the bid in joint venture with domestic conglomerates,” it said. On 3 July, aviation minister Hardeep Puri told the Rajya Sabha that the government was committed to exit AI and the effort was to make it more operationally viable before stake sale. In 2018-19, Air India had made a loss of around Rs 7,600 crore and had debt of Rs 58,300 crore. Terming privatisation of Air India as a “critical” aviation reform, the report said the move will also signal a strong intent to pursue structural reforms in the industry. It, however, suggested domestic and international operations be offered in one line, as there is significant value in the feed which they provide to each other. “Separation of domestic and international operations will result in reduced interest,” it warned and urged the government not to sweeten the deal to attract investors by any assurance such as temporary freezing of the bilateral. [caption id=“attachment_5525681” align=“alignleft” width=“380”]  Air India Express. Image courtesy: Air India website[/caption] “In fact, the bilateral policy should be opened up. A commercially-run, debt-free Air India no longer needs to be protected,” it said. This is the second time in last two years government is attempting to handover the legacy carrier to private players even as some six private airlines have shut shops in the past five years due to various reasons, including liquidity crunch. “The current global and national economic environment, and geo-political instability may have some impact on investor sentiment. However, the outlook for domestic carriers remains positive, especially after the grounding of Jet Airways and the recent softening of oil prices,” the report said. The core divestment should consist of the airline operations only, namely Air India, Air India Express and optionally Air India Regional and they should be sold along with aircraft-related debt and reasonable working capital loans, it said. “Special business units such as MRO (under Air India Engineering), catering (Chefair), ground handling (both Air India Air Transport Services and AISATS) and Centaur Hotels— should be sold off separately to raise capital that can be used to retire debt. Property and other non-core assets should be placed in a separate special purpose vehicle,” it said. It also said the government should exit Air India completely as any level of equity retention will deter investors due to concerns about the prospect of continued government interference. Assuming that the tender is launched in August, it should be feasible to select the successful bidder by the end of December, it said. The government had in February approved the setting up of a special purpose vehicle–Air India Assets Holding-to transfer Rs 29,464 crore of debt and its four subsidiaries after creating an SPV in January. The four subsidiaries which have been transferred to the SPV are Air India Air Transport Services, Airline Allied Services, Air India Engineering Services and Hotel Corporation of India.