Air India Sale:  After the loss making and embattled national carrier Air India was unable to find a bidder last year when it wanted to sell a 76% stake, the government has set an ambitious target of selling its entire stake this time.

Unlike earlier when the divestment didn’t take off, the government has tried to sweeten the by offering its 100 percent stake in AI and AI Express for sale instead of 76% in the first attempt and the entire 50 percent in ground handling joint venture AI-SATS.

The government also made significant change in the terms of bidding by allowing potential investors to bid on the basis of enterprise value, effectively allowing the bidders to determine the debt level they would want to take on.

Who has expressed interest?

Tata Sons, the Tata Group's holding company, has put in an expression of interest (EoI) to buy Air India, the airline it founded before it was nationalized in 1953, said a source in the know of the development without elaborating further.

Besides Tata Group, the US-based Interups Inc. has also submitted an Expression of Interest (EOI) in picking up stakes in Air India after over 200 employees of the airline have formed a consortium with the US-based company to bid for the airline.

What are the challenges?

Air India had current liabilities and provisions, including short-term loans and trade payables of Rs 70,686.6 crore and a net debt of Rs 58,255 crore at the end of 2018-19. Thereafter, the government has transferred Rs 29,464 crore of this debt from Air India to a government-owned special purpose vehicle, Air India Assets Holding Company Ltd.

The airline losses continued to mount along with a large workforce but also government obligations that require it to fly a number of loss-making routes. For fiscal 2018-19, Air India’s net loss is provisionally estimated at ₹8,556.35 crore.

Apart from the debt and enormous losses, the new owner will have to deal with legacy issues including various contracts and one of the major challenges will remain tackling the highly unionised workforce.

As on 2019, Air India had over 9000 employees, and the company has outstanding liability towards staff voluntary retirement scheme (VRS). The new owner will have the onus to pay and renew contracts and leases. It will only mean huge investment besides the amount to be paid for the deal to acquire 100% stake in the airline.

What’s the way ahead?

The entities that have submitted the expressions of interest, will submit physical bids by December 29, and the qualified interested bidders will be intimated on January 5.

The government wants to sell 100% stake in Air India that includes low-cost subsidiary Air India Express, 50% stake in ground handling company AI Singapore Airport Terminal Services (AISATS). The party that emerges as the winner from the bidding process will get access to global and domestic aviation network and slots at busy airports such as Mumbai, Heathrow, New York.

Industry experts believe that the turnaround of the company will take years.

Even as the biggest conglomerate Tatas has expressed interest after 67 years of exit the acquisition will not be devoid of challenges despite its strong capital base.

The Tata group’s current airline portfolio includes Vistara and AirAsia India. Both are 51:49 joint ventures – Vistara between Tata Sons and Singapore Airlines and AirAsia India between Tata Sons and AirAsia Berhad.

The portfolio consistently bled cash since inception and FY20 will continue to remain in losses. As per reports, Tata sons holds 51% stake in AirAsia India and is planning to merge the two companies after buying out joint venture partner Tony Fernandes.

Even as there is huge debt buden but the national carrier still remains an attractive asset because of its existing slots, fleet and staff, which are of the highest industry standards.

The airline has several advantages over rivals because of the stellar service network and prime arrival and departure slots in the busiest of domestic and foreign airports.