More than half a dozen companies, such as the Hinduja Group, German Lufthansa, the UAE’s Etihad Airways, Singapore Airlines, and the Tata Group, maybe in the list of buyers as the government accelerated selling Air India (AI), as per the source.
Several steps are being taken to attract buyers, including a plan to rapidly cut the airline’s 9,400 employees.
Logistical issues due to travel restrictions imposed after Covid-18 have forced the Department of Investment and Public Assets Management (DIPAM) to extend the expressions of interest (EoI) deadline several times. A call would be answered next week if it needs to be further extended from Aug. 31, the sources added.
Prospects and other stakeholders, including Lufthansa and Singapore Airlines, have received numerous inquiries about AI, although Covid-19 has cast a shadow over the aviation sector, which is hardest hit worldwide, an official said.
While NRIs were allowed to own 100% of the shares in AI, the government has maintained a provision that substantial ownership and effective control of the airline must remain with an Indian entity. That means foreign investors/airlines who can own up to 49% would have to team up with an Indian partner in order to bid for AI.
In any privatization, state-owned enterprise staffing issues are a concern for buyers because of the high labor costs and low productivity typical of a state-owned enterprise. While the Share Purchase Agreement (SPA) stipulates that the strategic buyer may not lay off any employees of the company for a period of one year, the move to authorize the CMD to send employees on vacation for five years could solve the problem The buyer’s potential labor force will solve to some extent.
While there is no official word yet, estimates suggest that AI is losing over 30 to 35 billion rupees daily during the pandemic due to the airline’s virtual grounding, up from around 20 to 26 billion rupees in December 2019.
AI’s personnel costs amounted to around 11% of total revenues in fiscal year 19. Interestingly, the cost-to-revenue ratio for employees was 11% for Indigo, 15% for Singapore Airlines and 19% for Lufthansa, according to AI’s preliminary information memorandum (PIM).
As of November 1 of last year, AI had 9,426 employees (excluding contract and casual workers), of which 36% will retire by fiscal year 24.
In addition to AI, the government is also shifting its 100% stake in its low-cost subsidiary Air India Express (AIXL) and 50% in AISATS, which provides cargo and ground handling services at major Indian airports.
The debt of AI and its low-cost subsidiary will be reduced by the government from Rs 60,000 crore as of March 31, 2019 to approximately Rs 23,286 crore (to be borne by potential buyers).
In addition, the national airline and its subsidiary have liabilities worth Rs 25,000 crore.
The buyer would only have to take over 9,700 crore rupees. In this manner, the buyer would have to assume asset-backed debt and liabilities worth Rs.32,986 crore, or only 39% of the total debt and liabilities of Rs.85,000 crore.
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