With the government gearing up to re-start attempts to divest its stake in loss making national carrier Air India, aviation consultancy firm CAPA on Wednesday said the second attempt is expected to generate strong interest, especially from Gulf-based carriers who may bid for the airline in partnership with Indian conglomerates.
“Interest is likely to be strong this time around. We do not rule out the possibility of some leading global carriers--including those from the Gulf--participating in the bid in joint venture with domestic conglomerates,” CAPA said. The think tank also noted that there would be more interest in the airline if the government axes off AI’s debt. “Air India represents an attractive opportunity for investors if it is relieved of its working capital debt, which stands around Rs 30,000 crore” it said.
Recently, aviation minister Hardeep Puri had told the Rajya Sabha that the government was committed to exiting AI and that efforts were on to make it more operationally viable before a stake sale. The government had proposed raising FDI limit in the aviation sector which currently stands at 49 per cent in the union budget.
CAPA went on to note that the government should exit Air India completely as any level of equity retention will deter investors due to concerns about the prospect of continued government interference. Assuming that the tender is launched in August, it should be feasible to select the successful bidder by the end of December, it added.
The government failed in its attempt to sell a 76 per cent stake in loss-making Air India in 2018, with sources stating that prospective bidders did not want the government to retain a significant share in the airline.
Other clauses set by the government also acted as a hurdle in the stake sale process. CAPA went on to suggest that Air India’s domestic and international operations be offered in one line, as there was significant value which they provide to each other. “Separation of domestic and international operations will result in reduced interest,” it warned.
“In fact, the bilateral policy should be opened up. A commercially-run, debt-free Air India no longer needs to be protected,” it said. CAPA further said that while global conditions are not in the best of shape, outlook for the domestic market is strong.
“The current global and national economic environment, and geo-political instability may have some impact on investor sentiment. However, the outlook for domestic carriers remains positive, especially adfter the grounding of Jet Airways and the recent softening of oil prices,” it said.