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.

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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.

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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“.

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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?

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Arpan Dey

Well, it is really a f*t chance that IndiGo purchases Air India. Air India has long lost its old glory. (Though I do still love the livery!) Why can’t they sell different aircrafts to different buyers separately? IndiGo could buy the A320s, SpiceJet could take over the AI Expresses 737s and so on… Anyway, really nice article, enjoyed reading ti. Thanks!

Anonymous

If IndiGo buys it, it will extend its dominance in the domestic market and it will also get the lucrative international slots especially in Europe and the Middle East. If Vistara decides to buy it, then they will too get the lucrative London and Tokyo slots to start their operations there. They had hinted on starting operations there once their Boeing 787-9s arrive. Moreover, they will also get the slots to US and Europe, routes which they recently wanted to get to rival the Middle Eastern carriers. Vistara will also get way more domestic slots as well for both tier 1 cities and more rural tier 2 cities.

Armand2REP

The interior of those planes are trashed. They will have to be stripped and redone before any respectable airline would take them.

powerfulnomad

The Tata Group has a natural interest in Air India, which started off as Tata Air Services in 1932. In recent interviews, Tata Sons Chairman N Chandrasekaran has not ruled out of the option of the group considering a possible bid for Air India.

The Group already has interests in aviation through two joint ventures in Vistara and AirAsia India.

Other names that have come up include IndiGo, the Hinduja Group – which made a brief appearance in the Jet Airways insolvency, and SpiceJet.

While some of these airlines may look too small to bid, they could form a consortium with PE investors or sovereign funds.
Credits go to moneycontrol.com

USOZ

A couple of things: first they should have removed more debt, at least another 10,000 crores. Lastly, they should have offered buyouts and Voluntary Retirement Packages for the Air India employees. Close 40% of the workforce is nearing the retirement age. By offering a buyout, it would payroll costs and headcount at the new entity.

Love Air India

What will the buyer receive? A lot. A headache that all employees from top to bottom just talk but accomplish nothing, a bunch of dirty aircrafts that noone has guts to enter a first class toilet, an investment that accounting can never reconcile due to only “negative” transactions.

Noah Bowie

Nobody will buy Air India. They’ll simply wait for it to be closed then cherry pick the best things. The aircraft, the slots, the staff at knockdown prices

Corey

Qantas along with Jetstar the and Australian Government or super company could buy out the airline.

1. It allows greater access into india along with larger capacity.
2. It Gives Qantas the slots needed in Europe which they either don’t have enough of or don’t have any at all.
3. Allows for greater discounting when buying new aircraft. Because of the Qantas, Jetstar and Air India it would mean massive savings.
4. The airlines reputation, customer service and safety would be vastly improved with the deal requiring all Air India pilots to meet CASA standards align with Qantas standards.
5. If they’re required to keep the 747-400 VIP jets then I could have them contracted to fly a minimum about of hours plus cover the cost of the aircraft and crew even if they don’t fly. For the flying hours it would be cost+20% ensuring there is still a profit made of around $9,000+ per hour. What this means that the cost to keep the aircraft crew trained, fly the minimum hours needed to keep their ratings along with maintenance would all be paid by the government under contract. Included in the contract would be X amount of hours for VIP travel and must be paid even if they don’t use the jet which included the 20% profit margin. Any additional flying hours would be paid with a 30-40% profit margin. There would be no carry over for flight hours.
6. The fleet needs to be over hauled. Their current A319-100s (22) and A320-200s (9) would be replaced by A320NEO which they currently have 27 in their fleet. Their A321-200s (20) would be replaced by the A321 NEO as well. The 777-200LRs would be replaced either by 787-9 due to already having 787 trained crews along with the common type rating for the 777. The 777-300ERs would be replaced by 777-9s. It would be around $5 billion
7. Profits from the company would then be split with the owners and there for share holders.

Over all the airline can make a profit and improve customer service and safety.