Asia News Mar 19

Covid-19 to hit Air India sale plan: Report

Centre for Pacific Aviation says Air India sale will be delayed and the government may have to infuse $400 million to keep it going

by KS Kumar
Covid-19 to hit Air India sale plan: Report
An Air India aircraft. Photo: AFP

While the aviation sector the world over is facing headwinds caused by the tightening grip of coronavirus, it has also impacted the Indian government’s efforts to privatize national carrier Air India. 

It has already extended the date of submission for expression of interest to April 30 from March 17 due to the ongoing coronavirus outbreak.

Consultancy firm Centre for Pacific Aviation (CAPA), in its report titled Impact of COVID-19 on Indian Aviation, said India’s plan to sell off Air India will be further delayed. It will have to infuse “immediate” interim funding of US$300-400 million to ensure continuity of operations until the sale process is done.

CAPA also stated that the government must also have a fall-back plan to regroup and continue to operate the airline for the medium-term if the privatization process is unable to proceed.

In January, the Indian government restarted the divestment process of the carrier and invited bids for its 100% stake in both Air India and its low-cost international budget arm Air India Express, besides its entire 50% holding in ground-handling joint venture AI-SATS.

It also offered incentives such as a restructuring of debt and liabilities and allowing the new owner to offer a voluntary retirement scheme to employees. According to the new plan, the government will pay Air India’s dues to vendors such as airports and oil companies, amounting to 220 billion rupees, or $3 billion, before selling the airline.

No Bidders

In 2018, the India government tried to divest Air India, but there were no bidders. The government at that time offered to sell a 76% stake in Air India and retain 24%. This failed to inspire confidence among bidders as they felt government control of a quarter of the total stakes would lead to political interference.

There was also a lack of transparency regarding the employee-retention clause. Bidders weren’t ready to deal with staff that couldn’t be laid off.

This time it was willing to sell the whole airline. In order to further sweeten the current deal, the Indian government also allowed Indians settled overseas to own a 100% stake in Air India. Till then, they were allowed to invest only 49%.

The new sweetened deal had evoked interest in the aviation sector and the suitors included Tata Sons, which jointly owns two airlines, Vistara and AirAsia India, and the country’s leading airline IndiGo.

However, the recent outbreak of coronavirus and its quick rise to pandemic proportions may put brakes on the sale process. The ongoing travel curbs imposed by various countries have put the global aviation sector in a tailspin. They are being forced to either suspend or reduce their operations due to low patronage as ticket cancelations far outweigh fresh bookings.

This is taking a toll on the cash reserves and bottom line of various airlines. In a different report, CAPA warned that if the current situation prevails many airlines will go bankrupt by the end of May. Under these grim circumstances, even the new sweetened offer for Air India may appear daunting for potential suitors.

The delay in the sale is bound to affect the Indian government’s overall plan to sell loss-making state-owned assets. It had earlier set a disinvestment target of 1.05 trillion rupees ($15 billion) for this financial year (ending March), and is likely to miss it.