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Resolving Air India debt priority of aviation ministry

LiveMint logoLiveMint 24-07-2017 Tarun Shukla

New Delhi: The government will prepare a list of options on how to deal with Air India Ltd’s massive debt before taking the next step towards privatisation of the national carrier.

The decision was taken at a meeting of the group of ministers (GoM) led by finance minister Arun Jaitley on Friday, a person familiar with the subject said, requesting anonymity.

The aviation ministry, in consultation with the finance ministry, is expected to present “various options” in the next meeting of the GoM.

Air India has a debt of about Rs30,000 crore, excluding aircraft loans, which needs to be taken care of before it can seek bids, the same person said.

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The airline made a detailed presentation on its finances and the operational improvements made over the past few years in the first meeting of the GoM, which was attended by aviation minister Ashok Gajapathi Raju, railways minister Suresh Prabhu, power minister Piyush Goyal, civil aviation secretary R.N. Choubey and Air India chairman Ashwani Lohani.

Most of this debt is owed to public sector banks led by State Bank of India. The lenders have declined to pick up an equity stake in the airline in lieu of the debt.

Another option is to hive off the debt and assets into a separate company. This option is being looked into but will need bringing the banks on board as well.

Only once these options are cleared will the department of investment and public asset management (Dipam) move towards hiring transaction advisers, legal advisers and asset valuers, this person said.

“That is far off,” he added, indicating the process of Air India disinvestment will not be over in a hurry.

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The aviation ministry itself cannot take a decision on the debt recast as the finance ministry provides equity to the airline and controls the state-owned banks.

The aviation ministry, a second official aware of the situation who also declined to be named said, will tell the GoM that unless a particular quantum of the debt is taken off Air India’s balance sheet, it will be difficult to find a buyer.

“Our biggest issue is debt and what is the finance ministry’s comfort level, we have to see. We are only saying with this debt Air India becomes a difficult commodity to sell so how much debt they can take up and in what manner (will require clarity),” this person said.

The GoM has been mandated to look into hiving off certain Air India assets, a possible demerger of its business verticals, strategic disinvestment of three profit-making subsidiaries, the size of the proposed divestment, and criteria for eligible bidders.

Air India has about 17% share of traffic on routes linking India to international destinations and 13% of the domestic market. Its total debt was Rs48,876.81 crore as on 31 March 2017.

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InterGlobe Aviation Ltd, which runs the largest airline in the country, has publicly expressed interest in Air India.

The Tata group, which started the airline in 1932 before it was nationalized, has also sought details from the government in informal conversations, Mint reported on 20 July.

Private equity funds KKR and Co. and Warbug Pincus are the latest to express interest in acquiring Air India’s businesses, Mint reported on 24 July.

“The privatisation process of state-owned enterprises is never an easy task and this is even more so in the aviation industry, where there is an abundance of failed attempts to learn from,” said Diogenis Papiomytis, director, aerospace and defence practice, Frost & Sullivan.

Most recent failed attempts include Malév Hungarian Airlines (liquidated), Malaysia Airlines (partially privatized and then returned to government ownership) and Alitalia (entering bankruptcy proceedings).

“Amid their troubles, Air India has some valuable assets, including landing slots at congested airports, new generation aircraft, an expanding maintenance division and a valued loyalty programme,” he said.

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