Tatas, SpiceJet's Ajay Singh submit financial bids to acquire Air India

Topics Air India | Tata group | SpiceJet

After a failed attempt in 2018, the government invited expression of interest last January to sell 100 per cent stake in Air India and Air India Express and 50 per cent stake in ground handling arm AISATS.
The Tata group and SpiceJet promoter Ajay Singh have submitted financial bids for acquiring Air India as the disinvestment process of the debt ridden national carrier entered its final stage. This comes three years after a failed attempt by the government to sell Air India.

“We have received financial bids in sealed covers. The bids will be opened after the reserve price is fixed independently and security clearance of bidders is obtained,” said Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management (DIPAM). The government hopes to conclude the disinvestment of Air India by the end of the year.

The Tata group has confirmed that it has put in its bid. Ajay Singh has participated in the bid, according to people in the know.

While the Tata group has submitted its offer through a wholly-owned separate subsidiary company, Singh is believed to have partnered with other entities for the bid. September 15 was the last day for submission of financial bids.

After a failed attempt in 2018, the government invited expression of interest last January to sell 100 per cent stake in Air India and Air India Express and 50 per cent stake in ground handling arm AISATS.

Initial bids were received last December and a draft share purchase agreement was issued in March. The suitors have shared their comments and there have been discussions with the government to fine-tune the draft agreement.

Air India and Air India Express together have over 141 aircraft and are the largest operators on international routes from India. However, the airline has been saddled with high debt and accumulated losses of over Rs 70,000 crore, impacting its performance.  In the last fiscal, its estimated loss was around Rs 9,779 crore.

To sweeten the sale offer, the government made changes in bid conditions last October. Instead of a pre-fixed debt level, bidders were allowed to quote enterprise value.

Further sops have come in form of the recent clarification in the Income Tax Act allowing the airline’s new owners to set off profit against the past year losses. The government has also agreed to employees’ demands related to provident fund and medical benefits in a move to prevent a possible confrontation.

“Air India is potentially a strategic opportunity but with high structural complexity. Investment in Air India will be a bet on India’s long term aviation potential – which is significant – keeping in mind the massive cost of restructuring and the continuous flow of funding that would be required for a turnaround. The government should not expect anything significant from Air India’s privatization and may be required to make the offer viable given the very poor financial and operational condition of Air India,” said Kapil Kaul, South Asia CEO of consultancy CAPA.

Some of the cost related challenges pertain to high lease rentals for Air India’s 787 aircraft and engine overhaul costs related to narrow body aircraft, a source said.

“Bidders will have valued Air India based on its intangible assets such as its airport slots, traffic rights and its brand value. We must bear in mind aviation has come under stress due to Covid-19 pandemic. There are a lot of aircraft capacity lying globally idle and this could depress the valuation multiple being offered by the bidders,” said an aviation analyst.

EY is transaction advisor for Air India  disinvestment.

The government is targeting Rs 1.75 trillion from disinvestment in the current fiscal. This includes stake sales in Life Insurance Corporation, Bharat Petroleum Corporation, IDBI Bank, Shipping Corporation of India and Container Corporation, among others.

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