‘No buyers for Air India may mean divestment to be put off’

Air India is not finding any takers and the privatisation may be put off by three years, delivering a blow to the efforts to divest the national carrier. According to analysts, due to the turbulence caused in the aviation sector by the COVID- 19 pandemic, airlines are already struggling and in that scenario, there are no buyers for Air India.

Tatas were supposedly frontrunners for the divestiture, but for some reason have backed out of the race for the moment after completing the due diligence process. The question is therefore whether the books revealed a bigger financial mess than what was anticipated.  The government has already postponed the last date for inviting bids after having said that the date would not be advanced. Civil Aviation Minister Hardeep Puri has remarked that the options on the table are either to sell the airlines or close it down.

October 30th was the latest deadline for finalising the sale of Air India, but Govt will be forced to extend that as well. The deadlines of Air India sale have been extended quite a few times in the last couple of years.

If the privatisation is put off by three years then the government will have to find a plan to keep the national carrier running for that period.

Reports suggest that the huge debt of Air India is a major reason for buyers not being extended. The government is examining how the debt exposure of the potential buyer can be reduced.

Out of Rs60,074 crore debt of Air India, the government had already announced a reduced debt exposure of Rs23,286 crore for the buyer.

This means, that instead of Rs60,074 crore debt, the new buyer will be needed to repay only Rs23,286 crore of debt.

The rest of the debt will be transferred to a special purpose vehicle called Air India Assets Holding Limited.

Discussions are on to evolve a formula where the buyers can put in a bid based on the enterprise value and bids will be evaluated based on that.

However, due to the stress in the aviation sector, buyers may not interested even with reduced debt given that their core operations are pressure.

Meanwhile, the recovery in air traffic in India has been slower than in other parts of Asia and Europe.

While traffic in China has almost reached 90 per cent of pre-COVID-19 levels, traffic in Europe is also recovering faster than in India, according to a research report by HSBC.

On the other side, recovery in air traffic in India has been the slower than in other parts of Asia and even Europe, HSBC noted.

Indo-Asian News Service