Will there be any taker for Air India as 100% stake sale proposal sweetens deal?

The government may soon set the ball rolling on privatising national carrier Air India as Prime Minister Narendra Modi is running out of time for meeting the privatisation target pending from the first stint in office. Finance Minister Nirmala Sithraman has to meet the divestment target of Rs 1.05 lakh crore for this financial year with the first six months lost without much headway. Apart from the divestment target, the government has to make up for the Rs 1.45 lakh crore largesse to the big corporate houses in the form of a sweeping corporate tax cut the spectre of the government missing the revenue deficit reduction target by a still wider margin, economists say.

The attempt in March 2018 to offload the loss-making national carrier failed to take off during the last tenure of the Bharatiya Janata Party (BJP) in the office while Arun Jaitley was in office as the government wanted to keep its 24 percent stake. The general slump in the aviation sector with two private airlines – Vijay Mallya-owned Kingfisher Airlines and Naresh Goyal-owned Jet Airways closing down in quick succession – also must have deterred potential investors.

"The expression of interest document for Air India will be put out anytime now, at least before the end of this month," a report on the Live Mint website said quoting an unidentified official. "The plan is to sell 100 percent stake in the airline. The proposal needs clearance from a ministerial panel before it is made public," the finance ministry official said.

The government had extended a Rs 30,000-crore bailout package to the debt-laden airline that had lost its market share to private airlines IndiGo and SpiceJet, the report says. The ministerial panel to divest Air India, headed by Home Minister Amit Shah, met for the first time last month and apparently decided to push the stake sale. The panel includes Finance Minister Sitharaman, Civil Aviation Minister Hardeep Puri, and Commerce Minister Piyush Goyal. The next meeting of the panel is likely soon to take a final decision on the privatization terms including the timeline.

The government hopes that apart from the 100 percent stake sale offer, its decision not to pass on to the potential buyers Air India's Rs 33,000-crore debt burden would make the deal irresistible. After the failure to sell the stake in the first attempt, the government formed a special purpose vehicle (SPV), Air India Assets Holding Ltd (AIAHL), earlier this year to transfer some of the airline's debt burden. The SPV will also take over non-core assets of the airline. However, the process of hiving off the airline's debt has been slow, sources suggest, saying that of the four subsidiaries of the airline, only Air India Air Transport has been transferred to AIAHL, which managed to raise Rs 7,000 crore through a bond sale last month.

Air India's swelling debt burden, which was at Rs 58,351 crore as of March 31, 2019, worsening from Rs 55,000 crore one year back, could prove to be a deal-breaker. It includes working capital and aircraft-related debt, the report says. However, the 128 air-worthy planes that the airline has on its fleet would be a major attraction for companies that want to break into this growing market.

Foreign investors looking for a robust presence in the Indian market may find the Air India deal sweet as they can gain full ownership. Under the foreign direct investment norms, foreign airlines cannot own more than 49 percent stake in an Indian carrier. The grounding of Kingfisher Airlines and Jet Airways may also have made Indian aviation skies less cluttered.