The Union Cabinet will soon decide the fate of the state-owned carrier Air India by deliberating on three options to divest the government’s majority stake and consider the creation of a special purpose vehicle (SPV) to get rid of a major portion of its more than ₹50,000-crore debt.
The three options on the table are a full 100% sell-off, a 74% stake sale or retaining a 49% share in the airline, as per the note prepared by the Department of Investment and Public Asset Management (DIPAM) for the Cabinet's consideration, officials aware of the development said.
“The note for the Cabinet has given three options for divesting stakes in Air India. The final decision rests with the Union Cabinet which is expected to take a decision soon,” an official source said.
Finance Minister Arun Jaitley had said last month that the government was looking to privatise the national carrier.
While the Central government think-tank NITI Aayog and the Finance Ministry are in favour of an outright sale of the ailing airline, the Civil Aviation Ministry is keen that the government continues to remain a stakeholder in the national carrier after handing over the management to the private sector.
The Cabinet will also consider a proposal to clear up Air India’s liabilities by forming a Special Purpose Vehicle (SPV), which will house a portion of its non-aircraft debt along with its subsidiaries and real estate assets.
Loans and assets
“A major portion of the working capital loan, subsidiaries and prime properties owned by Air India is proposed to be housed in an SPV,” the official said.
According to the plan, of the airline's over ₹30,000 crore total working capital loan, ₹25,000 crore will be earmarked for the SPV. Air India has a total debt of around ₹52,000 crore which comprises of ₹22,000 crore as aircraft loan and the remaining as working capital loan.
“The income garnered through sale of assets and subsidiaries will be sufficient to meet the liability of the working capital loan of the SPV,” the official said.
Partial lease
Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG advised that the Centre should lease Air India’s assets to an SPV “while keeping the assets and liabilities in the books of the Air India; 74-100% equity of the SPV can be sold to the highest bidder from the private sector.”
“An alternate structure wherein an SPV takes over the liabilities, subsidiaries and real estate assets of Air India is also possible. This may require a detailed analysis of the legalities involved and concurrence of lenders,” Mr. Dubey said.
Air India has four wholly-owned subsidiaries which include its MRO unit Air India Engineering Services Ltd (AIESL), ground handling arm Air India Transport Services Ltd, Airline Allied Services Ltd which operates Alliance Air, and Air India Charters Limited which operates Air India Express. The Hotel Corporation of India (which owns Centaur Hotels) is another subsidiary while it has a joint venture AISATS.
Some of its prime real estate properties include a building at Nariman Point and another at the old airport in Santa Cruz in Mumbai, freehold land in Chennai’s Anna Salai, an office in Baba Kharak Singh Marg in Connaught Place in New Delhi and freehold land and buildings in Hyderabad. However, the airline has mortgaged some of these as security with banks for availing loans.
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