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-   -   Air India Divestment - Tata Sons completes acquisition (https://www.team-bhp.com/forum/commercial-vehicles/197321-air-india-divestment-tata-sons-completes-acquisition-2.html)

My two paisa worth:

The Govt this time around made full use of professional help in the form of two of the Big 4 and also sought inputs from the industry to better understand what will work and what wont. And to their credit they have come up with a fairly practical approach and stayed away from the usual Govt political pressures. Some of the sensible points are -

A. The Hold Co they have created which will house half the debt ie Rs 25,000 crores and which will use its profit on sale of shares to extinguish this debt. At least that seems to be the plan here.

B. Breaking the behemoth into saleable and commercially attractive parcels - Core, Cargo, Engineering etc. No one bidder can ever be found who is interest in all pieces but by breaking it into homogenous parcels the Govt improves its chances of attracting more than one bid per asset.

C. Don't read it as 'they cannot sack anyone for one year' - it is phrased that way for political correctness. Read it as 'after a cooling period of a year the new investor can do as it pleases'. That one year will in any case be needed to get a grip on things and figure out whom to terminate and whom to retain and the least disruptive way to manage the transition and culling down.

D. With the Govt's holding at 24% and not 26% they have signaled that they will not play any role in the management. As many of our readers may know 26% is the minimum needed to block a special resolution of the company's general body.

While Air India is overstaffed they have some good people in there with solid training. Once the unions realize the game is up they will fall in line. Political support for unions is no longer what is was 15 or 20 years ago.

Having seen this movie play before I am more confident this time than ever in the last 20 years that this divestment will happen. It will be good for the Govt financially speaking and a sign to the market that we are willing to work on PSUs where needed. Aviation assets and that too in a fast growing market rarely come up for sale. I would be quite hopeful that the Govt will receive a healthy response.

If this works next up for reforms will hopefully be the railways.


Gauri Shankar VT-DKK, a Boeing 707. It was Air India's first ever jet airliner - and the first ever in any Asian airline (yes even before Japan Air Lines by a few weeks albeit).

Thanks, Mr. Narayan. Can you explain a bit more on this?

The way I understand, say total Debt of Air India is Rs 100, they keep Rs 50 in a holding company and sell the other half Rs 50, now let's assume they get Rs 50 from sales proceed of the other half, so they use this Rs 50 to adjust the debt of Rs 50 lying in the holding company?

And so depending on the value of the sales of this half, the whole equation will change, is it right?

Your understanding is correct, Turbanator. To continue with your illustration - they are likely to get more than Rs 50 for the sale value which will help the Govt extinguish the Rs 50 debt in the Hold Co and put the rest into the Govt treasury. They hope to get a lot more for the final 24% which may be sold (like with Maruti) some years later. If Air India does have a turn around then the value of that 24% stub maybe a lot more than the value of the first 76%. That's the assumption for now. As most of us know the routes & the landing spots are probably the most valuable asset even after the depredations suffered in earlier years when these were traded away to certain foreign airlines.

Subramanian Swamy terms AI divestment a potential scam in the making.

Very informative post as usual Narayan :thumbs up

But as you and I are model collectors I have to point out that "Gauri Shankar"
707 was registered as VT-DJI stupid:

https://www.airindiacollector.com/boeing-707.html

http://www.airliners.net/photo/Air-I...707-437/193165

http://www.airliners.net/forum/viewtopic.php?t=275735


It unfortunately crashed in Mumbai in 1982 and in some places for some reason it is referred to VT-DJJ.

https://en.wikipedia.org/wiki/Air_India_Flight_403

http://aviation-safety.net/database/...?id=19820622-0

Or was the plane's registration changed multiple times while it was in Air India
or there were two planes named the same as suggested here?

http://www.airwhiners.net/whine_cheez/aifleet.htm

Edit: there seem to be two Air India 707s VT-DJI and VT-DJJ, both crashed in Bombay, one in 1971 and other in 1982.

Looked up my books - those 20th century relics:) Thank you for the correction. My mistake. The first 707-420 was VT-DJJ first named Annapurna and later changed to Gauri Shankar after a fire which was deemed inauspicious. Apparently two aircraft bore the name Gauri Shankar at different times, why I don't know.The second was VT-DJI named Nanda Devi and the third was VT-DJK christened Everest. VT-DJJ as you point out was the one that crashed in 1982. Now to make matters messier VT-DJI was supposed to be the first to be delivered and put into service hence the numbering sequence I-J-K but for some reason VT-DJJ arrived first! In those days the IAF fighters used to ceremonially escort these modern behemoths as they came in over Mumbai. Photo below of VT-DJK, the 3rd 707 being escorted by Gnats in 1960.

Off topic - these 707's taking off was a sight. In Delhi's summer heat the thrust from the Rolls Royce Conways used to drop significantly and the marginal power to weight reserves were tested to the limit. You could see the 707 running down the runway and then just about rotate at the end and gently, very gently climb in a shallow arc. The IL-76's when loaded take off in the same way today. - diversion Ends.

Back to the divestment.

For those of you who are interested in doing a deep-dive into the proposed strategic disinvestment, I give you the 204-page long Preliminary Information Memorandum (or. to give it its full title, the Preliminary Information Memorandum for Inviting Expression of Interest for Strategic Disinvestment of Air India Limited, including AI's shareholding interest in the AIXL and AISATS by Government of India, Ministry of Civil Aviation - phew!!):

Air India Preliminary Information Memorandum.pdf

Source: Ministry of Civil Aviation website (www.civilaviation.gov.in)

https://www.thehindubusinessline.com...ign=Newsletter

The Govt now plans to park Rs 29,000 crores of Air India's Rs 55,000 crore debt burden into an SPV to lighten the Air India balance sheet. This will help only up to a point in making the asset more attractive to sell. The key stumbling blocks last time were the Govt's insistence on holding about a quarter of all equity and restrictions on cleaning up the over staffing. Interestingly Govt officers I have spoken to think far more highly of Air India than ordinary aviation citizens like me. There is a reason senior Govt officers like to cling on to PSU companies like Air India and Ashoka Hotels.

Air India rakes in losses of thousands of crores each year. Most of the debt has been taken to fund its losses. 55,000 crores could build about 55,000 lane kms of highway grade roads, or 550,000 Shulabh Shauchalyas - roughly one for each village.

Air India sale back on table, govt may divest entire stake in carrier

Taking lessons from last year's failed privatisation attempt, the government is unlikely to hold any residual stake in the airline.

https://economictimes.indiatimes.com...w/69481657.cms

https://www.business-standard.com/ar...2700021_1.html

The story starts again. How to divest Air India has been going on for not less than 2 decades. And yet this behemoth which has sucked in tens of thousands of crores of loss funding remains an unsold asset. Last time they got no bids. One reason was the burden of dealing with the ~ 21,000 employees was dumped on the buyer. Unsurprisingly no one had an appetite for pilots who demand too much and deliver too little. I hope they think more pragmatically this time. Air India’s losses in 2018-19 are expected to be Rs 13,500 crores and in 2019-20 Rs 15,000 crores (these are unofficial estimates).

Air India is only worth taking over if the banks takes a massive haircut, the government has zero stake in the business and most importantly, staff can be hired and fired at will. If not, I don't see any smart business taking it over. I wonder if the government is serious about the sale due to the perks offered to government staff and politicians on Air India, which private carriers do not

Govt. invites bids for AIR INDIA and its subsidiary AIR EXPRESS

- Last date of filing the bid is March-17th

- Bidders must absorb $ 3.3 billion debt to buy the airline.

- Qualified bidders would be notified on Mar. 31st

Link

With the current move, the Govt. is trying to set aside the uneasiness & apprehensions of the buyer (given that they can still find one). Selling 100% stake is more of an assurance rather than a financial call, that there will be no (bureaucratic) interference in the working of the entity in the hands of the new buyer.

However, to absorb such a monumental debt coupled with the carrier making huge losses routinely, it remains to be seen that who can be the brave bidders. Paying off the debt and dealing with losses will be one thing and restructuring the operations will be another; which will require a significant amount of money again.

I am curious to learn more about the possibility of this sale going through. Even Indigo, India's best managed airline, struggles to maintain a consistent margin. How and why will any other company absorb Air India? Even Jet failed despite being a much more professional company.

I don't think even the most adventurous risk taking business rookie would dare touch this falling knife. The best way forward would be to basically ground the whole fleet, sell assets and reduce debt and then put it up for auction for its 100% stake. Alternatively , Govt can absorb the debt, and sell only the assets.

My personal opinion is that air fares must be revised to more realistic levels. Last time, I traveled to Delhi from my home city, I paid close to 3K per head for Rajdhani Exp (2A). Though I felt that was a bit high (felt even worse reading the fine print on the ticket that railways is recovering only 57% of the cost on my journey :Frustrati), but at the same time, air fare for the same destination was merely 2400 bucks!

Flying is not a birth-right of any individual. And the industry has to regularly cope with factors like fuel price, increased taxes, salary & other overheads, loss due to airspace closures, interest on debt, aircraft maintenance, cost of time-slots, apart from acquiring the expensive aircraft altogether. Airlines piling big losses can even not close due to further losses to the allied interests like that of fuel supplier and other creditors.

It will be great if people from the industry like Narayan sir can come forward and let us know if the airline industry, even outside India is a profitable & feasible business in long term and what strategies have the likes of Indigo have in place to still be in green, as of now at least.

Another couple of questions out of curiousity:

Will the Govt. form another National carrier after selling Air India? Is it necessary to have a National carrier?

And not to forget, Air India has played some heroic roles in rescuing Indians from overseas whenever situations called so. Even from high risk war zones. Even today, an Air India Boeing-747 is on standby in China for evacuation of Indians after the scare of Coronavirus. If required, who will serve this purpose in future? Can the private carriers be asked by the Govt to carry such operations? Not every private player will be looking forward to fly in situations where they can be shot down- like that during the Gulf war where the AI did.

Regards,
Saket