CAPA India comments on release of documentation on Air India disinvestment process

    CAPA India commented (05-May-2018) on the release of a document by India‘s Ministry of Civil Aviation outlining queries received from prospective bidders in response to the expression of interest (EoI) document for the divestment of Air India. Based on the nature of the questions, three key themes are emerging:

    • It is critical that some of the terms and conditions outlined in the EoI document, particularly with respect to debt and labour issues, are amended in the request for proposal (RFP) document. The successful bidder will need to make sizeable investments in restructuring the airline and will almost certainly have to fund losses for several years until the carrier is turned around. This will be in addition to the significant consideration that will have been paid for the 76% share of equity. Given the scale of these commitments, bidders are seeking some relief on the debt that will remain with Air India and some certainty that they will not encounter industrial unrest after investing billions of dollars;
    • Unless bidders are confident that they will be ring fenced from possible political risks and government interference if successful, this could prove to be a key reason for possible non-participation by some parties at the RFP stage;
    • CAPA estimates that over FY2019 and FY2020 Air India could be headed for cumulative losses of USD1.5 billion to USD2 billion. If the divestment process is not executed successfully, the airline could possibly close, unless the government has the appetite to use billions of dollars of taxpayer funds to keep Air India alive. It will be far less costly to make the offer more attractive to investors.