The Centre on Wednesday issued a memorandum inviting bids to divest 76% stake in Air India through transfer of management, control and sale of the equity share capital. The minimum net worth required to bid for the state-run airline is Rs 5,000 crore.
Bidders have till May 14 to show interest, and those shortlisted will be informed by May 28. The government appointed management firm Ernst & Young LLP to be its transaction adviser.
Why did the government make this decision?
Air India has not been earning profits since it was merged with state-owned domestic operator Indian Airlines in 2007. The company made an operating profit of Rs 298 crore in the year through March 2017 but still posted a net loss of Rs 5,765.16 crore, primarily because of declining oil prices.
The buyer has to take on Rs 33,390 crore of the national carrier’s total debt of Rs 48,700 crore. The government decided to divest its stake in Air India, ignoring a parliamentary panel’s recommendation to give the debt-ridden airline five years to revive itself.
How will the company be divided?
Minister of State for Civil Aviation Jayant Sinha had explained that the company will be put up for sale as four different entities. The national carrier, its low-cost arm Air India Express and subsidiary AISATS will be one entity, while Alliance Air – its regional arm –
will be another. Air India Air Transport Services Ltd and Air India Engineering Services Ltd will be sold separately. Bidders can attempt to buy the four entities separately, or in any combination.
Who are the major suitors?
IndiGo, the country’s biggest airline, is the only company to have publicly announced its desire to buy Air India’s operations. Singapore Airlines and the Tata Group, which runs Vistara, have also expressed an interest.
The company that will buy the 76% stake in Air India will end up with the lucrative prime-time slots at major international airports, such as New York and Heathrow, and will also have bilateral rights to start flights to most countries.
Can international carriers also bid?
Yes, they can. On January 10, the Cabinet relaxed foreign direct investment rules for civil aviation by allowing foreign companies to invest up to 49% in domestic carriers. However, these investments cannot exceed 49% directly or indirectly, and the ownership and control of the airline has to remain with an Indian national.