Interest among global airlines in the upcoming second attempt at disinvestment of Air India is likely to be strong this time, the Centre for Asia Pacific Aviation (CAPA) said. In a statement, CAPA said that it does “not rule out the possibility of some leading carriers including those from the Gulf participating in the tender in a joint venture with large Indian conglomerates.”
The aviation advisory, however, cautions that the current global and national economic environment and geo-political instability may have some impact on investor sentiment. “However, the outlook for the performance of Indian carriers remains,” it adds. There is a likelihood of international entities seeking to form joint ventures with Indian companies to bid for Air India to comply with norms that cap foreign direct investment into the national carrier at 49%.
Increased valuation
The CAPA has recommended that the government allow FDI for a higher number of bidders and increased valuation for Air India. This will be necessary as major Indian corporations from outside aviation may not have the appetite to invest in a complex project without an experienced strategic partner, it noted.
The exit of Jet Airways, Air India’s biggest full-service competitor, from the market has further enhanced the chances of a successful disinvestment this time. “CAPA has long maintained that the Indian market can only sustain two full-service carriers, and that the operation of three such airlines – Air India, Jet Airways and Vistara – was not sustainable.” However, the remote chances of a revival of Jet Airways, along with the “current global and national economic environment and geopolitical instability” may dampen investor sentiment, CAPA warned.
The aviation consultancy reiterated what it considered were key factors to ensure a successful attempt at privatisation of the national carrier. These include: the government exiting completely from the airline, allowing the new owner flexibility in dealing with Air India’s employees and easing the requirement of the ‘Air India’ brand being kept intact by its buyer.
Minister of State for Civil Aviation Hardeep Singh Puri told Parliament that the government may launch its second attempt to privatise the national carrier before the end of August. An earlier attempt last year failed to yield any interest, with no entity coming forward to bid for Air India.
Air India currently has over £5.5 billion debt. The government had in February 2019 approved creation of special purpose vehicle (SPV), Air India Asset Holding Ltd (AIAHL), to house £2.95 billion debt of the airline as well as its non-core assets, painting and artifacts and other non-operational assets.
