Air India bid: Tata is frontrunner, ahead of SpiceJet promoter

Air India bid: Tata is frontrunner, ahead of SpiceJet promoter

  1. ABOUT AIR INDIA

• Air India is the flag carrier airline of India, headquartered in New Delhi. It is owned by Air India Limited, a government-owned enterprise, and operates a fleet of Airbus and Boeing aircraft serving 102 domestic and international destinations. Air India was the largest international carrier out of India with an 18.6% market share. Over 45 international destinations are served by Air India across five continents. The airline became the 27th member of Star Alliance on 11 July 2014.

• The airline was founded by J.R.D. Tata as Tata Airlines in 1932. After World War II, it became a public limited company and was renamed Air India.

     2. WHY AIR INDIA IS GETTING PRIVATISED?

• Union minister Hardeep Singh Puri announced that Air India will be completely disinvested and added that the choice is only between disinvestment or closing down the airline company.

• “Air India is a first-rate asset but has an accumulated debt of Rs 60,000 Crore. We need to draw the slate clean” Hardeep Singh Puri said.

• He said that the government is looking at a new timeline for Air India disinvestment and financial bids will be invited in the coming days.

     3. BEGINNING OF FINANCIAL BID

• On January 27, 2020, the government invited Expression of Interest (Eol) for the proposed strategic disinvestment of Air India.

• The Centre initiated the process of inviting financial bids for the sale, taking another step towards privatization of the national carrier.

• It issued a request for proposal (RFP) to the shortlisted bidders, asking them to submit financial bids.

• After analyzing the preliminary bids, eligible bidders were given access to the Virtual Data Room (VDR) of Air India, following which investors’ queries were answered.

     4. TATA GROUP: THE FRONTRUNNER

• Tata Sons Ltd, the group holding company that controls Jaguar Land Rover and owns a majority stake in Air Asia India and Vistara, a joint venture with Singapore Airlines Ltd, submitted a bid for Air India earlier this month.

• The Tata Group has emerged as the frontrunner to acquire Air India, as the government looks to close one of its most ambitious disinvestment projects.

• Even as the government is yet to formally approve Tata’s winning bid, people with direct knowledge of the matter said the Mumbai-based conglomerate has placed the highest bid – over Rs 5,000 crore.

Representatives of both bidders were called for meetings on two occasions earlier this week, during which the share-purchase agreement was discussed to help them take a long-term view of Air India’s various liabilities, and plan the funding accordingly.

The Tata Group has emerged as the frontrunner to acquire Air India, as the government looks to close one of its most ambitious disinvestment projects, multiple sources told The Indian Express.

Even as the government is yet to formally approve Tata’s winning bid, people with direct knowledge of the matter said the Mumbai-based conglomerate has placed the highest bid — over Rs 5,000 crore more than SpiceJet promoter Ajay Singh, who participated in his individual capacity in the bidding process.

An official announcement is likely to come after the Air India Specific Alternate Mechanism (AISAM), a group of ministers headed by Home Minister Amit Shah, ratifies the winning bid. Other members of AISAM are Finance Minister Nirmala Sitharaman, Commerce Minister Piyush Goyal, and Civil Aviation Minister Jyotiraditya Scindia.

A senior government official said that once the winner is announced, the share-purchase agreement will be signed with the winning entity within 15 days, and the transfer process will begin immediately afterward. “We are targeting the complete transfer of assets to happen by mid-February,” the official said.

Representatives of both bidders were called for meetings on two occasions earlier this week, during which the share-purchase agreement was discussed to help them take a long-term view of Air India’s various liabilities, and plan the funding accordingly.

The Civil Aviation Ministry issued a preliminary information memorandum in January 2020 seeking an expression of interest, kicking off the process of disinvestment. A key change from the government’s earlier attempt to sell Air India in 2018 was that it said it would offload 100% of its stake, compared with 76% earlier. The stake sale includes Air India’s 100% shareholding in AI Express Ltd, and 50% in Air India SATS Airport Services Private Ltd.

Over the past two years, the government has allocated some of Air India’s debt to a special-purpose vehicle (SPV) — and in this round of the disinvestment process, the buyer was required to take on Rs 23,286 crore of the total Rs 60,074 crore debt on the airline’s books.

However, this again was a hurdle for a new investor, given that in addition to cleaning the debt, the airline would need further investment for it to become healthy. Air India’s debt situation worsened further as Covid-19 lockdowns that began soon after the government’s announcement, hit the global airline industry, reducing the sector to its worst period in history.

In October last year, the government once again tweaked the bidding parameters — a significant change was that the Centre took a call to allow prospective bidders the flexibility to decide the level of debt they wished to take on, along with the loss-laden airline.

The government said that potential bidders would be allowed to place their bids on the basis of enterprise value, which accounts for both equity and debt of the company. This winning bidder will have to pay at least 15 per cent of the quoted enterprise value to the government in cash, and the rest can be taken on as debt.

The addition of Air India to its aviation portfolio will be a significant leg-up for the Tata Group’s international operations, as it will get access to 1,800 international landing and parking slots at domestic airports and 900 slots at airports overseas, in addition to 4,400 domestic slots. This will include routes and slots at prime locations like London and New York, and a wide-bodied aircraft fleet is essential for long-haul operations.

Air India was founded by the Tata Group in 1932, and was nationalised in 1953. The group has evinced interest in acquiring the airline on several occasions earlier, including in 2001 along with Singapore Airlines — but the bid was withdrawn at the last stage because of a number of factors. In 2015, the Tata Group launched an airline in a 51:49 joint venture with Singapore Airlines. The group also holds 83.67% stake in the low-cost airline AirAsia India.

Industry sources said that if the Tata Group manages to bring Air India under its umbrella again, it could consolidate its airline operations. A significant roadblock in its plan — the lack of Singapore Airlines’s waiver for the group to acquire Air India — was cleared recently.

As of August 2021, the three airlines together had a market share of 26.7% in the domestic air passenger market. Air India is placed second with a 13.2% market share, behind leader IndiGo’s (57%).

OFFICIAL ANNOUNCEMENT

• An official announcement is likely to come after the Air India Specific Alternate Mechanism (AISAM), a group of ministers headed by Home Minister Amit Shah, ratifies the winning bid.

• A senior government official said that once the winner is announced, the share purchase agreement will be signed with the winning entity within 15 days, and the transfer process will begin immediately afterward.

• “We are targeting the complete transfer of assets to happen by mid-February,” the official said.

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