Air India sale may exclude real estate and its prime land holdings

Air India employees walk towards flight
Suitors of Air India may not be able to bid for the vast plots of land and real estate the national carrier holds in prime locations. The government is likely to hive off the non-core assets of the airline, including real estate, land parcels and art treasures, into a separate company before calling a formal bid. 

“What will be up for sale as part of initial disinvestment are the aircraft, the airline’s prized slots at airports across the world, the bilateral rights and its pool of human resource,” a senior civil aviation ministry official who is involved with the disinvestment process said.

According to the official, such a process will help speed up the process of disinvestment, as locating and registering Air India’s vast land pool and real estate would have taken much longer. The Department of Investment and Public Asset Management, the administrative wing for any disinvestment, has suggested a time line of around 10 months for the process, it is learnt.

“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

Property / City

 
  • 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