Air India Is For Sale – What Will The Buyer Receive?

Air India is officially up for sale, again. The airline was initially placed up for sale in 2018, but the procedure was closed without a buyer. The airline had so much debt and so few assets, no one wanted it. But now it’s for sale for a second time. But what has changed? What exactly will the buyer get in return for their money?

Air India Plane getty Image
Air India is for sale again. Photo: Getty Images

The last time Air India was for sale, things didn’t go to plan. The Indian government was looking to keep a 24% stake in its national carrier but no one was willing to take on so much debt for so little in return. So, the sale was halted. But now Air India is back on the market and, this time, it’s looking like a better deal. If you fancy buying an airline, now might be your chance.

On Monday, the government invited bids from potential buyers. Bids are to be placed before 17 March 2020. In the document released on Monday outlining the airline’s current state and sale plans, the government has said that Air India and its subsidiary Air India Express have just over 12% of the Indian aviation market. An attractive offer, but there are still issues.

Debt details

This time around, 100% of the airline is up for sale including its planes, slots and staff. The Indian government is no longer looking to keep its stake in the airline. The only caveat to this is that four of the airline’s Boeing 747 aircraft are to be kept aside for VIP operations.

The government has also removed many of Air India’s previous partnerships from the deal. This means a buyer won’t be lumped with a complex, interconnected empire of debt. The hotels owned by Air India, Air India Engineering Services Ltd (AIESL) and regional airline Alliance Air will all be removed before the sale.  Now, investors can simply consider buying an airline and its network, not an entire corporation.

Air India Express Getty images
Air India Express is part of the sale package. Photo: Getty Images

However, Air India Express and AISATS, a joint grounding handling operation with Singapore Airlines, are both included in the sale. This attempt to streamline to sale process may result in success this time. Analyst Kinjal Shah, in conversation with the Wall Street Journal, said that the changes were “a step in the right direction“.

Crucially, the airline’s debt has been reduced. Last time, potential buyers would have had to take approximately $5.1 billion of debt. This has been reduced to around $3.3 billion. More appealing, although still a significant debt. According to India’s civil aviation minister, the airline’s total debt is actually at a massive $8 billion. The government has not said what it will do with the remaining debt.

Plane problems

Air India does have a massive 121 aircraft in its fleet; a lot to work with. But there are issues. While the airline brags that it owns 56% of its fleet, more than most airlines, this may not actually be a good thing.

Many of the aircraft are getting old as the airline did not replace them for newer, more fuel-efficient models. Additionally, trouble comes from the fact that 16 planes have been grounded since November 2019. That’s 13% of the fleet.

Air India Grounded PLanes GEtty Images
Several aircraft have been grounded since last November. Photo: Getty Images

In addition to this, the aircraft it owns are seriously outdated, and in need of a refresh inside. Seating configurations aren’t up to par with other mainline carriers, and don’t present an efficient way of operating Air India’s routes.

The Wall Street Journal is reporting that the airline may sell for $7 billion but another $10 billion would be needed as an investment to revamp the existing planes, repair those which have been grounded and buy new aircraft.

Potential buyers

When it comes to who can buy the airline, several restrictions have been lifted compared to the previous sale. Hopefully, this will encourage bidders. A reduction in the net worth of a potential buyer means more airlines will be able to bid.

Additionally, if an Indian airline wants to take over control, or bid as part of a consortium, the limitation requiring the bidder to have a minimum of 10% of the consortium’s worth is waved. This change allows both SpiceJet and Vistara to bid as well as IndiGo.

Another sticking point for potential buyers is that Air India must retain its name. Although a buyer could fold their existing operations into the Air India brand. Just as its name must remain, so the airline must remain at its heart, Indian. A foreign airline can only bid for up to 49% of the airline, which puts restrictions on some airlines who may be interested.

IndiGo plane Getty Images
Perhaps IndiGo will buy Air India this time around. Photo: Getty Images

All in all, the deal is considerably better than the last time the airline was for sale. But it’s not a bargain.  And there are other ongoing issues to be sorted before a sale can be approved.  An Indian MP has threatened to take the government to court over the privatization and unions are already meeting to discuss workers’ rights.

If the new offer does bring in a buyer, they will have plenty of hurdles to jump. Bringing this national carrier back to its former glory is going to take a lot more than just buying the airline. A serious overhaul is needed. The question is; who, if anyone, will take on the challenge?