Air India bidders can benefit from debt flexibility; why the government wants to sell all stakes in the national carrier
In order to make Air India’s privatization process attractive, the government is seeking to give investors a chance to decide on the airline’s high indebtedness. The flexibility will replace the current condition that the buyer takes on more than a third of the debt and transfers the rest to a special purpose vehicle, the secretary of the Department of Investment and Asset Management told PTI. (DIPAM), Tuhin Kanta Pandey, in an interview. The secretary added that potential investors had requested that the debt not be fixed at the expression of interest (EoI) stage.
Air India’s expression of interest launched by DIPAM in January showed total debt of Rs 60,074 crore as of March 31, 2019, and the buyer was to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India. India Assets Holding Ltd (AIAHL), a special purpose vehicle. Tuhin Kanta Pandey further said that there is a lot of uncertainty in the aviation industry due to the pandemic and therefore the transaction should be structured. Discussing comments that not everything should be settled at the EOI stage, he added that it could be decided by the market rather than the government. Air India Specific Alternative Mechanism (AISAM) will take a final call on whether the tender for Air India will take place on the basis of equity value or enterprise value, it said. He underlines.
The government wants to sell its entire stake in the national carrier. “Government has decided to divest from Air India due to its fragile finances and continuous and accumulated losses,” Hardeep Singh Puri, MoS (IC), Ministry of Civil Aviation had said in response to a question in Lok Sabha. last month. Additional financial support to revive the airline in a mature and competitive aviation market would not be the best use of scarce government financial resources, the minister added.
Meanwhile, Air India has suffered continuous losses and the COVID pandemic and its related impact on the aviation industry has further worsened the company’s financial condition. During the lockdown period, Air India had skeletal operations of Charters or Vande Bharat flights. Hence, in the first quarter of the current financial year, the airline incurred a loss of nearly Rs 2,570 crore.