Govt feels bidding by overseas carriers could “unnecessarily” accelerate bidding war. Tatas may benefit
The government is keen to retain the rule of not allowing foreign airlines in participating in the national carrier’s disinvestment to prevent the spiralling of bid prices even as it has appointed London-based accountant and professional services firm EY, along with others, as adviser for state-owned Air India’s (AI) privatisation.
The government feels that participation by foreign carriers could make the acquisition by domestic carriers pricey, a reliable source in the know of the development told DNA Money.
According to the source, the government does not want foreign airlines to “unnecessarily” accelerate bidding war for AI’s stake and push up its price. He said many in the government were keen that the domestic and international passenger airline operations – Air India and Air India Express – of the public sector undertaking (PSU) went to Tata Group, which was its original owner before the airline was nationalised.
Low-cost airline IndiGo has also evinced interest in picking up stake in Air India’s passenger airlines.
“The government is not very keen on changing the condition of not permitting foreign airlines to bid for AI’s sale. There are many in the government who feel Tata Group would be the best fit for Air India. It would an emotional match. And they (some in the government) do not want unnecessary bidding war that may see prices go up and spoil the chance for domestic airlines,” said the source on condition of anonymity.
As per the current rule, foreign investors can own up to 100% in a private domestic airline while foreign airlines 49%. However, as per the existing foreign direct investment (FDI) guidelines, overseas airlines cannot buy a stake in the government-owned Air India.
The government is looking at divesting stake in Air India, which has been a drain on the exchequer due to its huge liability and unprofitable operations. Since the national carrier has many business arms under its umbrella, from ground-handling, maintenance repair and overhaul (MRO), cargo, inflight kitchen, engineering, and others, it is looking to sell them separately to derive maximum value out of them.
The government is also expecting to monetize the extensive assets of AI in the form of real estate, properties, passenger loyalty programme, among others, to meet some of its over Rs 50,000-crore liabilities that include working capital loans and debt raised to buy aircraft.
“The value chain of the airline is being studied closely to get maximum value through the disinvestment. In the last attempt, AI’s hotel (Centaur) and flight cater (Chef Air) was sold for a song (under Prime Minister Atal Behari Vajpayee),” he said.
The source said now that transaction and legal advisers have been finalised, they would begin working on the request for information (RFI) and the whole process could take approximately “six months to a year” before it is completed.
LOCAL EDGE
- Tata Group was the original owner of the airline before it was nationalised
- Low-cost IndiGo has also evinced interest in picking up stake in Air India’s passenger airlines
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