Air India privatization: Govt plans global road shows as it prepares for sale

New Delhi: The government plans road shows for Air India Ltd in India and abroad as it proceeds to sell the airline, according to a note it released on Thursday evening.

In its detailed tender requesting for proposals for engagement of advisers for strategic disinvestment in Air India and its subsidiaries, one of the tasks outlined for the adviser is of “conducting road shows in India and abroad”.

The caveat indicates that the government is aware there would be international interest in the airline and, therefore, may change the rules that currently restrict international airlines from bidding for the national carrier.

The government also seems to be aware that the valuation of Air India and its brand value will be a tricky task.

It has, therefore, noted in the same tender that while the selected adviser will assist in fixing the range of the fair reserve price— considering the valuation of the Air India group based on the methods including but not limited to discounted cash flow, relative valuation, replacement cost method, among other things—the government will have the option of getting the valuation done from another agency and it will also consider the report of the asset valuer.

The merchant bankers will advise and assist the government on modalities of strategic disinvestment and the timing, and the positioning of the strategic sale.

The bidder needs to have at least five years of experience in providing similar advisory services for disinvestment, strategic sale, merger and acquisition activities, private equity transaction etc., and should have advised, handled and successfully completed at least one transaction of merger/acquisition/takeover/strategic disinvestment/private equity transaction of the size of Rs4,000 crore or more between April 2012 and 30 June 2017.

The bids have to be sent by 12 October and a pre-bid meeting will be held on 25 September at the Department of Investment and Public Asset Management (DIPAM), under the finance ministry.

The tender also indicates that a special purpose vehicle could be created. People close to the ongoing sale have said the unsustainable debt of Air India—Rs30,000 crore—and its land assets could be parked in a SPV.

It also outlines what will be on offer. It says Air India group operates to 42 international destinations and over 70 domestic stations. It has an operating fleet of 142 aircraft comprising 65 Airbus A-320 aircraft, 15 Boeing B777 aircraft, 24 787 aircraft, 23 737-800 and 11 ATRs and 4 B747 aircraft.

The airline is 100% owned by the government of India and its share capital as on 31 March 2017 is Rs24,425 crore and its authorized capital is Rs30,000 crore.

Except for Hotel Corp. of India (HCI), all other subsidiaries are wholly-owned subsidiaries of Air India, it noted.

The airline has five subsidiaries—Air India Express Ltd (AIEL), the low-cost subsidiary which operates to the Gulf, Middle East and South East Asia from various points in India but predominantly from Kerala; Air India Air Transport Service Ltd (AIATSL), which does ground handling; Air India Engineering Services Ltd (AIESL), which is primarily involved in the maintenance, repair and overhaul of engines and airframe; Airline Allied Service Ltd (AASL) or Alliance Air which operates regional routes; and HCI, which has two hotels in Delhi and Srinagar and Chefair Flight kitchen units in Mumbai and Delhi.

The airline also has a joint venture called AI/Singapore Air Transport Services (SATS) for ground handling activities at Delhi, Mumbai, Bengaluru, Trivandrum and Mangalore with equal equity holding.

The Cabinet Committee on Economic Affairs (CCEA), in a meeting on 28 June, gave an in-principle approval for the strategic disinvestment of Air India and its five subsidiaries.

At least three firms—InterGlobe Aviation, Bird Group and Turkey's Celebi—have formally evinced interest in Air India’s privatization and have written to the civil aviation ministry in this regard.