Air India sale: Third time lucky, and life comes a full circle for the Maharaja

Shishir Sinha New Delhi | Updated on October 09, 2021

Over two decades after disinvestment was conceived, the plan takes wing

The jinx surrounding sale of Air India was finally broken in the third attempt after continuous tweaking of the policy.

The journey for Air India disinvestment begun in early 2000 when one of the conditions was a 26 per cent cap on foreign shareholding. The first attempt was for Air India International, while the second and third were for the merged entity of Air India along with Air India Express and Air India SATS. In the first attempt the foreign bidder was asked to join hands with an Indian company. A consortium of Tata and Singapore Airline emerged as the front runner. However due to huge political furor and criticism from members of the ruling party the government had to abort the deal.

The second attempt took place in 2017, when Cabinet Committee on Economic Affairs gave ‘in-principle’ approval. However, considering the huge debt and the government retaining 26 per cent stake discouraged any response. This forced the government to give up the plan to hold on to 26 per cent.

The process re-commenced on January 27, 2020 with issue of Preliminary Information Memorandum (PIM) and request for Expressions of Interest.

Third attempt

The original construct as per the memorandum envisaged pre-determined, fixed amount of debt to be retained in AI (with balance to be transferred to Air India Asset Holding). Also, the sum of certain identified current and non-current liabilities (other than debt) to be retained in AI and Air India Express would be equal to the sum of certain identified current and non-current assets of AI and AIXL with excess liabilities to be transferred to AIAHL.

The bidding construct was revised in October 2020 to Enterprise Value (EV) to allow prospective bidders an opportunity to resize the balance sheet and increase chances of receiving bids and competition. The EV construct allowed the bidders to bid on the total consideration for equity and debt instead of a pre-determined, fixed debt with minimum cash consideration of 15 per cent for equity.

Back to founder

Meanwhile, the government also made some changes in Income Tax laws providing benefit to the new owner. The entire exercise spread over 18 months resulted in the new owner being the one that started the airline.

Published on October 08, 2021

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