At a time when most airlines are struggling with profitability, at home and abroad, finding worthy buyers for the beleaguered Air India was posing quite a conundrum. But the government seems to have found a neat middle-ground solution.
"The minimum net worth criteria for companies or consortiums bidding for Air India has been set at Rs 5,000 crore. But to allow participation from domestic airlines - many of which have negative net worth - it has also been decided to allow them to bid provided they form a consortium that has a net worth of over Rs 5,000 crore," a senior government official told The Economic Times.
The aim behind setting a minimum eligibility threshold is to weed out "non-serious as well as fly-by-night operators" from bidding for the national carrier while the group-bidding clause will ensure that the participant pool for the auction remains sufficiently 'deep'. Interestingly, according to the source, an airline with a negative net worth can even partner a private equity investor to submit a bid.
Interestingly, the evaluation committee of Air India had earlier recommended setting a minimum net worth eligibility criteria for the bidders to the Core Group of Secretaries on Disinvestment (CGD). But earlier this week rumours surfaced that the CGD had scrapped this criteria keeping the industry situation in mind.
The high fuel prices, escalating labour costs and slow global GDP growth in the recent past all dented airline profitability across the world. Among the domestic carriers, reportedly only IndiGo is profitable, though recent trouble grounded planes with faulty Pratt & Whitney engines may change things. Its competitors like Jet Airways, SpiceJet and Tata group-promoted Vistara all show negative net worth. A similar story plays out among the foreign players, with a majority of them operating in the red. But the latest proposal will allow all such airlines to team up and submit an eligible bid. So who's in the yet-to-start race, so far? Air France-KLM is expected to be one of the bidders while David Lim, Singapore Airlines' general manager for India, has recently said "We are keeping an open mind on the bidding process for Air India. We have not closed the door yet."
As per reports, the government is planning to split the airline into four entities - core airline business (Air India and Air India Express), regional arm (Alliance Air), ground handling and engineering operations. Each entity will be sold separately with at least 51 per cent stake on offer. Air India's debt currently stands at Rs 51,890 crore, and the government has pumped $3.6 billion since 2012 to bail out the airline. While the government is keen to fast-track the disinvestment process with a year-end deadline in mind, analysts point out that the delay in inviting Expression of Interest (EoI) from bidders signals that things may take longer.