Air India divestment: Will Modi 2.0 get second time lucky with 100% stake sale?

The government of Prime Minister Narendra Modi has resumed where it left off in its previous stint and Air India privatization seems to be at the very top of its priorities. The government may spice up the offer with 100 per cent divestment this time around to lure potential buyers as against the 74 per cent stake sale proposed in 2018. The sale then had to be put on hold after the authorities failed to get any worthwhile offer.

The preliminary information memorandum (PIM) which seeks expressions of interest (EoI) from potential buyers for the stake sale is expected soon and the two-stage bidding process could begin as early as July 7, media reports say. "Besides offering 100 per cent stake to private investors, more loans of the airline would be transferred to the special purpose vehicle (SPV) in order to further sweeten the deal," an IANS report said quoting an unidentified senior official. The government has already transferred debt amounting Rs 29,464 crore along with other non-core assets to the SPV, Air India Assets Holding Ltd that was floated in February last year, to attract more bids for the carrier. "The transaction advisor (Ernst & Young ) has proposed to raise the transferable debt amount," the report said.

The government last year initiated the process to sell the majority 74 per cent stake in the national carrier but the plan did not take off as no private investor responded. It then put the process on hold because of rising fuel price and weak investment climate dampened investor enthusiasm.

The last government had missed the divestment target by a big margin majorly because of the failure on privatising Air India and Modi 2.0 has taken the divestment target seriously. The Prime Minister's Office (PMO) has directed the Civil Aviation Ministry under Minister of State (independent charge) Hardeep Puri to complete necessary works for Air India's disinvestment as early as possible, reports say. Civil Aviation Secretary Pradeep Singh Kharola has instructed the airline to finalize the financials of Air India and its subsidiaries by end of June.

"Also, the accounts for FY 2018-19 would form the basis of bidding. Therefore, it is necessary that they are prepared with utmost caution so as to reflect the correct financial status," Kharola said in a letter to Air India chairman Ashwani Lohani.

The national carrier is now the second largest airline of the country after IndiGo. Jet Airways, which used to be the second largest, has now become defunct. The airline, which flies to 93 destinations including international ones, has 125 aircraft and accumulated losses of about Rs 55,000 crore. The government has yet to decide on a request from the airline management to approach the National Small Savings Fund (NSSF) for a loan of about Rs 2,500 crore to raise working capital.