When was Air India divestment first mooted?

The first attempt to conduct a strategic sale of the airline was made in 2001 during the NDA regime when Atal Vihari Vajpayee was the Prime Minister. At that point, the government of the day wanted to offload 40 per cent of the airline’s equity. Initially, several foreign airlines, including Lufthansa, Swissair, Air France-Delta, British Airways, Emirates and Singapore Airlines, expressed interest. In addition, Indian corporates like Hinduja Group and Tata Group were in the fray.

However, when the government clarified that any foreign airline will have to partner with an Indian company to bid, most airlines pulled themselves out of the race. Singapore Airlines, which partnered with Tata Group, remained in the fray. Due diligence was also completed. But it pulled out at the last moment. Tatas did not want to bid alone, and the divestment failed.

Why were successive Governments keen to sell the airline?

It was said the Government, in just the last decade, infused over ₹1 lakh crore in Air India in the form of cash and credit guarantee support. But the airline continued to make losses, which stood at nearly ₹20 crore a day or ₹7,046 crore for 2020-21. And debts ballooned. Accumulated losses as of March 2020 stood at over ₹70,000 crore. Again and again, auditors had voiced their doubts over the airline remaining a going concern. So, the choice before the government was to either sell the airline or shut it down.

Why did the Modi Government’s attempt to divest Air India in 2017 fail?

The next notable attempt was made around 2017 by the Narendra Modi-led government. By then significant changes had happened to the airline. In 2007, Air India was merged with Indian Airlines, which worsened its already poor financial position. To sweeten the divestment deal, the Modi government decided to off-load the majority stake. The Centre would hold on to 24 per cent of the equity in the airline; and 76 per cent would be divested. The acquirer would also have to pick up a portion of the airline’s debt. Investors backed away at the prospect of picking up debt, and not a single bid was received.

What was different this time around?

In January 2021, the Modi government brought Air India back to the strategic sale table with significant changes in terms. The biggest change was that the Government said it would offload 100 per cent of its stake in Air India. Further, over the past two years, part of Air India’s debt was transferred to a special-purpose vehicle, and in this round of the disinvestment process, the buyer was to take on Rs 23,286 crore of debt out of a total ₹60,074 crore. However, this again was a hurdle for a new investor, given that in addition to cleaning the debt, the airline would need further investment to become healthy. The aviation industry was hit by Covid already. 

In October, the government further tweaked the bidding parameters. A key change was that the Centre took a call to allow prospective bidders the flexibility to decide the level of debt they wish to take on along with the loss-laden airline. The government said that potential bidders will be allowed to place their bids based on enterprise value, which accounts for the company’s equity and debt.

Who were the bidders, and how much did Tata’s pay for Air India?

In all, there were seven entities, including Talace (a Tata Group subsidiary) and SpiceJet promoter Ajay Singh (in his personal capacity), which had evinced interest in acquiring Air India. Only two -- Talace and Ajay Singh - qualified to reach the bidding stage. Talace won the bid, by offering ₹18,000 crore in total for the airline against Singh’s ₹15,100 crore. The reserve price for the deal was set at ₹12,906 crore. The winning bid of the Tatas included a ₹2,700 crore cash component and ₹15,300 crore of debt.

What do the Tata’s get?

Apart from Air India, Tata group gets Air India Express and 50 per cent stake in Air India SATS which provides ground handling services. For Tatas, over and above the emotional aspect of regaining control of an airline they started, AI’s acquisition is a long-term bet. They are expected to invest far more than what they have paid the government if this acquisition works or them. Tata Sons, who originally founded the airline in 1932 as Tata Airlines before it was nationalised, already operates two airlines in India — Vistara (a joint venture with Singapore Airlines) and AirAsia India (a joint-venture with Malaysia’s AirAsia). According to reports, the Tata Group may consolidate all airline companies under a single brand after discussing with its partners.

Why is successful divestment of Air India critical for the Government?

Air India divestment will be seen as PM Modi’s fulfilment of his commitment to reducing the government’s role in the economy. The government has set high targets for disinvestment, and the success of divesting Air India will send the proper signal to the investors. This is, when big ticket disinvestment such as BPCL and LIC are in the pipeline.

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