‘Allow foreign airlines to bid for Air India’

An aviation consultancy firm has said the government should allow foreign airlines to participate in bidding for Air India as no major Indian company will invest in such a complex project without an experienced strategic partner.

CAPA India-Centre for Aviation in its report has said allowing foreign airlines to participate will increase the number of bidders and the valuation. The consultancy firm also said the balance sheet of the airline should be cleaned up as, in its current form, it can never be a viable business proposition because of its massive debt and interest burden.

Also, the entire 100 per cent equity should be sold off as any level of equity retention will deter investors because of concerns over the prospect of continued government interference post-privatisation.

The core divestment should consist of the airline operations only, namely Air India, Air India Express and optionally Air India Regional. They should be sold along with aircraft-related debt and reasonable working capital loans.

Special business units such as MRO (Air India Engineering), catering (TAjSATS), ground handling (both Air India Air Transport Services and AISATS) and Centaur Hotels should be sold off separately to raise capital that can be used to retire debt. Property and other non-core assets should be placed in a separate special purpose vehicle. The new investors should have reasonable flexibility to take commercial decisions on employee numbers and productivity over time, particularly for non-core roles, ideally by not replacing retirements. Similarly, with the retention of the Air India brand, the government should be open to discussions.

The domestic and international operations should be offered in one line, as there is significant value in the feed which they provide to each other. Air India is also part of a global system owing to its membership of Star Alliance. Separation of domestic and international operations will result in reduced interest, the consultancy firm said.

As Air India represents a complex opportunity, prospective bidders will need sufficient time to assess the offer, conduct due diligence and arrive at a valuation, and should not be rushed through this process. Once relieved of most of its working capital loans, Air India represents an attractive opportunity.

In fact, bilateral policy should be opened up. A commercially-run, debt-free Air India will not need to be protected.

The data room should include detailed information on Air India’s finances and labour contracts (including any ongoing negotiations) as these are two of the most sensitive issues that will impact interest and valuations.

A large proportion of the technical staff are due to retire in the next 5- 10 years, which is an issue that the new owners will need to prepare for, the report said.

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