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Air India Privatization Write Up

Air India has consistently ranked as one of the worst performing airlines due to delays and debt issues. The government is considering writing off some of Air India's debt to make it more attractive to investors for privatization. In November 2017, Air India received a Rs. 1,500 crore loan from Bank of India to help with working capital needs as it works to reduce debt and sell non-core assets. A report outlines that a successful privatization of Air India will require cleaning up its balance sheet through debt reduction, allowing foreign airline investment, a complete exit of government ownership, offering its integrated domestic and international network as a single unit, and providing comprehensive financial and labor contract disclosures.

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Elena Gilbert
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60 views2 pages

Air India Privatization Write Up

Air India has consistently ranked as one of the worst performing airlines due to delays and debt issues. The government is considering writing off some of Air India's debt to make it more attractive to investors for privatization. In November 2017, Air India received a Rs. 1,500 crore loan from Bank of India to help with working capital needs as it works to reduce debt and sell non-core assets. A report outlines that a successful privatization of Air India will require cleaning up its balance sheet through debt reduction, allowing foreign airline investment, a complete exit of government ownership, offering its integrated domestic and international network as a single unit, and providing comprehensive financial and labor contract disclosures.

Uploaded by

Elena Gilbert
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Air India Privatization

Air India is ranked the third worst performing airline in the world. Jan 9th, 2017
Air India has been ranked the 3rd worst in FlightStats’ annual list of the international airlines
with the best on-time performance records.

Govt panel to consider Air India debt write-off. July 29th, 2017
The aviation ministry and the Department of Investment and Public Asset Management
(Dipam) will on Friday present to a ministerial panel their recommendation on the amount
of debt that needs to be written off Air India’s books to make the state-owned airline
attractive to potential investors, a government official said on condition of anonymity.

Air India gets Rs1,500 crore loan from Bank of India. November 12th, 2017
Debt-laden Air India has received a loan worth of Rs1,500 crore from Bank of India to meet
urgent working capital needs less than a month after floating a tender in this regard, an
airline source said.

For the second time in recent months, the flagship carrier has received loans from a public
sector lender. Battling multiple headwinds, the disinvestment-bound airline has been
working on ways to reduce its debt, including by way of selling non-core assets and
expanding operation

What can make its sale successful? October 4th, 2017


Debt clean-up, foreign airline investment, complete government exit, integrated network
and comprehensive disclosure will be key to a successful Air India Ltd disinvestment, a new
report has said. 

Consulting firm CAPA in a Wednesday report said these five issues will be key as the Air
India sale process moves forward. 
Clean-up the balance sheet: This is the most important step. The airline can never be viable
in its current avatar due to its massive debt and interest burden. 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, including 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.

Divest 100% of the airline: The government should exit Air India completely. Any level of
equity retention will deter investors due to concerns about the prospect of continued
government interference post privatisation. 

Allow foreign airlines to participate: Global carriers should be permitted to invest up to


49% as per the norms for the sector. No major Indian corporation from outside aviation will
invest in such a complex project without an experienced strategic partner. Allowing foreign
airlines to participate will increase the number of interested bidders and the valuation.

Offer a single integrated network: 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 as a result of its membership of Star Alliance.
Separation of domestic and international operations will result in reduced interest.

Provide comprehensive disclosures: 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 within the next 5-10 years which is an issue that the
new owners will need to prepare for.

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