“If everything goes as suggested and there is no glitch or court case, we expect the process to be over in 10 months,” the official said.
But, the buyer of Air India will have to take over a certain portion of the working capital debt of the company, another source said. “It’s not possible for the new owner of Air India to generate working capital from Day One. Hence, a certain portion will be left behind,” he said.
Of Air India’s total debt of Rs 46,500 crore, around Rs 30,500 crore is on account of working capital; the rest is aircraft loans.
It makes sense for Air India not to club real estate in the proposed deal because many of its land parcels are involved in litigation across various courts, mainly due to irregularity of title deeds, analysts said. In the most recent instance, the City Industrial Development Corporation has refused to hand over 9.50 hectares of land plot allotted to Indian Airlines in Vashi, Navi Mumbai, to Air India since it was left unused.
“It may not be easy for Air India to sell its assets because they have a mixed bag, including apartments, and not all are clear land parcels. While there is demand for clean titled land parcels, there may not be many takers for other kinds of properties in a slow-down scenario,” said a property consultant.
A practical option is to create an SPV (special purpose vehicle) to which aviation assets of Air India — aircraft, slots, brand, market share, staff — can be leased, said Amber Dubey, head of aerospace and defence, at global consultancy firm KPMG. Around 74-100 per cent of the equity in the SPV can be sold to a private bidder quoting the highest bid.
The lease rental paid by the SPV can be used to retire past debt and pay for the Voluntary Retirement Scheme of excess staff, added Dubey.
Air India disinvestment may well be modelled on privatisation of Delhi and Mumbai airports. The high-lease rentals paid by the SPVs - Delhi Indira Gandhi International Airport and Mumbai International Airport are used to compensate the huge losses suffered by Airports Authority of India (AAI) at its smaller airports.
“Everyone’s happy, especially AAI, with profits far larger than when they were operating Delhi and Mumbai airports,” he said.
Responding to private airline IndiGo’s interest in acquiring Air India, market analysts have underscored the importance of a faster sale process. “While there is a veritable chance of delay for any final decision to emerge, the value proposition of Air India will dilute with time,” ICICI Securities noted in a research report.
A preview of Maharaja’s assets
Primary non-core assets of Air India
Airlines House, Gurudwara Rakabgunj Road / New Delhi
Air India Building, Nariman Point / Mumbai
One villa, two apartments / Hong Kong
Premium office space / Berkshire, London
Staff quarters, Vasant Vihar / New Delhi
Premium office space, UIC Building / Singapore
In addition, Air India also owns one of the largest collections of paintings, antique furniture