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Air India disinvestment: Government likely to push out EoI shortly; ready to give up majority control https://www.firstpost.com/business/a...l-4408039.html
March 28th, 2018
Quote:
The government is likely to release an expression of interest (EoI) document shortly that will kick-off the disinvestment process at the troubled Air India group. The Narendra Modi regime is likely to sell a 76 percent stake in Air India, a 76 percent state in Air India Express and a 50 percent stake in cargo joint venture AISATS, according to media reports.The EoI is expected to impose a minimum net worth condition on bidders, speculated to be Rs 5,000 crore.It could also include a clause that will force the winning bidder to retain all Air India employees for at least one year.The government is planning to retain a 24 percent stake in the ailing carrier.
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Air India divestment The government has cleared the runway for Air India's divestment - the government has given its 'in-principle' nod to sell 76 percent stake in national carrier Air India. https://www.moneycontrol.com/news/bu...a-2538915.html Quote:
The government has cleared the runway for Air India's divestment - the government has given its 'in-principle' nod to sell 76 percent stake in national carrier Air India. CNBC-TV18's Shereen Bhan caught up with MoS, Civil Aviation Jayant Sinha to discuss the nuances of the decision.
Below is the transcript of the interview.
Shereen: Why would the government want to retain any stake at all in Air India? Why not 100 percent disinvestment? The government has decided to retain stake, you are only offloading 76 percent, what was the rationale behind that decision?
A: One of the things we do want to be able to do is to participate in the value creation that will happen once Air India is with new owners who will of course take it to great heights and make it into a great global airline. There will be tremendous value creation.
In fact if you look at what has happened to Maruti, Maruti today has a market cap of Rs 2.7 lakh crore, it has become a very valuable company under private ownership. We think that Air India will also do exceedingly well. We will in fact be absorbing some of the debt of Air India in the asset holding company that we are creating and because we want to pay down that debt and we want to be able to fulfill all the obligations that government has, we would like to be able to maintain a certain residual stake in Air India, so that we can participate in the value creation. I would like to point out that we are giving full management control to the new owners. So, full management control will vest with the full owner, the government will participate so that we can be able to unlock some of the value that is in Air India.
There is another important point to note, which is that the ESOP that we will create, the stock ownership pool that we will create for employees will come out of the government's stake of 24 percent. So, government's stake will probably even fall below 20 percent once we create the ESOP pool for employees as well. So, we want to really make sure that the value creation is fully shared by employees and of course by the people of India as Air India progresses and does much better going forward.
Shereen: You talked about value creation but you also talked about the other big concern and that is with respect to debt. Let me ask you for clarification because as per the memorandum, you basically say that liabilities - which is, current liabilities as well as net liabilities aggregating to a total of about Rs 33000 crore will remain with Air India and Air India Express (AIXL) and balance debt shall be allocated to Air India Asset Holding. So the bidder will have to take on Rs 33000 crore odd in terms of debt and how much would be the balance that would then move to Air India Asset Holding?
A: That is wrong, let me be crystal clear about it, there is Rs 24576 crore of interest bearing debt that will be transferred to the new Air India. If you look at our annual reports that we put out for fiscal year 2016-17, you will see that the total amount of interest bearing debt that we have right now is almost about Rs 50000 crore. So we will be transferring Rs 24576 crore of that to the new Air India. The remainder which is about Rs 25000 crore will stay with the asset holding company. The additional Rs 8800 crore of current liabilities that will go with the new Air India really represent net working capital, they are not interest bearing debt, but for the sake of accuracy we have said that interest bearing debt plus current liabilities will amount to Rs 33392 crore. There is interest bearing debt of Rs 24576 crore that will go with the new Air India, the rest will be current liabilities.
Shereen: I also wanted to ask about some of the eligibility criteria that you have listed as per the memorandum, you say companies with net worth of Rs 5000 crore will be allowed to bid for government's stake in Air India, you also say that the company will need to be PAT positive in at least 3 of the preceding 5 years from the expression of interest deadline. Hypothetically, because you are also allowing consortium's for the Air India disinvestment, so will every party have to comply with this? For example Vistara would not comply with the profitability criteria. So will that then be disqualified or will it still be eligible as part of a consortium?
A: Profitability requirement does not apply to domestic airlines, it applies to non-domestic airlines. So the 3 out of 5 years does not apply to domestic airlines. We have a large number of domestic airlines that have low net worth or negative net worth, if you have negative net worth, we will make it zero and we have restricted their ownership of the consortium to 51 percent. Because they have negative net worth their contribution to the net worth of the consortium will of course be zero. Nonetheless, we will enable them to own upto 51 percent of the consortium. In aggregate the consortium will have to have Rs 5000 crore in net worth. So, we made that also very clear. It is in aggregate that the consortium will have to have a net worth of Rs 5000 crore.
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Air India 747 in its earlier livery. Is the divestment exercise finally coming home? Will the airline that was the world's first all-jet fleet regain its earlier glory and reputation for customer service.
Thread moved from the Assembly Line. Thanks for sharing.
I flew AI recently after years, and I was visibly impressed with the flight: Food & seat comfort in particular were much better than competing and more expensive options!
The only areas where I've been let down with Air India is to do with timeliness, and maintenance. Get this, on a flight back from Frankfurt/Munich (it was years ago) - they ran out of toilet paper, and the armrests had duct tape all over them!
With a private entity taking over, I hope they retain the strengths while improving upon the weaknesses to truly challenge Jet / Indigo with their superior coverage!
I think the TATAs are the front runners for the bid, along with Singapore Airlines to back them up. Knowing how Singapore Air works, i do hope those things percolate into the new Air India.
Will it also be a what goes around comes around moment for TATA? After all, it was the man himself who started Air India in the first place.
Quote:
Originally Posted by Red Liner
(Post 4378925)
I think the TATAs are the front runners for the bid, along with Singapore Airlines to back them up.
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Too early to say, it's much more, I will say just the landing rights in different countries Air India gets should be lucrative for many besides the huge potential of entry into the growing domestic segment for many foreign airlines.
As an example, none of the Gulf carriers gets more than a city to fly to Canada, so Emirates can fly to Toronto, Qatar to Montreal and none to Vancouver or Calgary. There will be many more such examples where Air India gets the right being the National carrier and I think with Government retaining a stake, it will be the same position even after the private takeover.
Anyone who has the money and experience and can cash on the synergies of their existing setup can come out as a winner. And Air India being part of the Star Alliance, does add value.
I won't be surprised if they are able to sell this handsomely, but my views are based on my naive understanding of this competitive & specialised industry, perhaps, seniors like Mr. Narayan can throw in more lights about the advantages of investing in Air India.
About damn time i would say. The government cant seem to do even the basic things its supposed to do here in India both at the state and central level like infrastructure, protection of individual rights, giving the people swift and timely justice, list goes on. It shouldnt be wasting its time running any business of commercial nature. Leave that job to people who can do it the best, the private sector.
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Originally Posted by nakul0888
(Post 4379090)
About damn time i would say. The government cant seem to do even the basic things its supposed to do here in India both at the state and central level like infrastructure, protection of individual rights, giving the people swift and timely justice, list goes on. It shouldnt be wasting its time running any business of commercial nature. Leave that job to people who can do it the best, the private sector.
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Fully concur. There is a saying that the government has no business to be in business. This could not hold more truth than in current circumstance.
Air India is a white elephant. Post merger with Indian Airlines, the bleeding started in full ernest. In 2011 the then government decided to support the airline for 20 years with a Rs.42182 Crs bailout till FY32.
Given that private airlines are willing to take up the mantel there is no reason to continue to support this business venture. Yearly losses exceed Rs.5000 Crs which in a poor country like India can be better spent else where.
Quote:
Originally Posted by nakul0888
(Post 4379090)
It shouldnt be wasting its time running any business of commercial nature. Leave that job to people who can do it the best, the private sector.
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This is correct in the context of Air India.
But privatization is not the silver bullet for all our ills. This has been parrotted for a while now and the calls have grown louder and louder over the last couple of years . For e.g. In the banking sector, the PSBs have done themselves no favor with their ineptitude. The NPAs have become unmanageable. People want to privatize all the PSU banks. However , the private sector is not beyond reproach. Just look at what is happening in ICICI.
Corporate governance laws in India are a joke.The sector regulators, barring a few, are toothless. There is no guarantee that we will not see mismanagement under private owners. The state's presence is necessary in certain businesses of commercial nature(for e.g., railways,banking). More importantly, it has social obligations that cannot be ignored. We must think long and hard before hopping aboard the privatization bandwagon.
Quote:
Originally Posted by satishv1987
(Post 4379343)
This is correct in the context of Air India.
But privatization is not the silver bullet for all our ills. This has been parrotted for a while now and the calls have grown louder and louder over the last couple of years . For e.g. In the banking sector, the PSBs have done themselves no favor with their ineptitude. The NPAs have become unmanageable. People want to privatize all the PSU banks. However , the private sector is not beyond reproach. Just look at what is happening in ICICI.
Corporate governance laws in India are a joke.The sector regulators, barring a few, are toothless. There is no guarantee that we will not see mismanagement under private owners. The state's presence is necessary in certain businesses of commercial nature(for e.g., railways,banking). More importantly, it has social obligations that cannot be ignored. We must think long and hard before hopping aboard the privatization bandwagon.
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Sure private players are not angels send from the heavens. They all have their own wallets on their mind when doing business. We all know that.
Thats why need a government that focuses on protecting individual rights and protecting people from fraud and cheating. The fraudsters need to be brought before justice and the victims have to be given compensation. Swifty. Thats basically the primary role of government besides defense.
Indian govts are weak at fulfilling this duty. So the solution should be to make it stronger at this regard. Not start doing business in the commercial sector with taxpayer money or regulating to death every other industry there is that the whole country becomes a bureaucratic nightmare. Today India ranks somewhere around 140 at the economic freedom index. This is just pathetic and also the reason why we are still a developing country even after 70 years of independence. Free markets and capitalism is the way forward for prosperity and wealth. We all ought to know this by now.
It's going to be a real challenge for any entity to turn around Air India's fortunes.
The total staff strength of AI is around 18000 which includes temporary/contract staff, AI Express and AI SATS. Read in one of our papers also (maybe TOI, not sure) there would be a clause to protect employee jobs and whoever takes over would not be able to streamline operations for a year at least.
There will be loads of other clauses and challenges but this clause will be huge setback for any entity as with such a huge workforce plus union pressures, it would be almost impossible to run an efficient unit.
Singapore Airlines is right at the top where business practices and running a tight ship is concerned. Let's hope for the best.
Cheers
Quote:
Originally Posted by Cyborg
(Post 4379408)
Singapore Airlines is right at the top where business practices and running a tight ship is concerned. Let's hope for the best.
Cheers
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I did a case study about SIA recently and things are not as rosy as you point then out to be. SIA is not making money and few in the airlines business are. Read the IATA report published every year to know the details. SIA was good once upon a time like AI, but now it lacks the edge when it comes to innovation, technology or capability. If you want to look at an airline that continues to innovate and grow, look at Quantas.
It is still owned by the Australian Govt (majority stake). And it is one of the world's most innovative airline companies. They recently planned to start a flight that would be the longest in the world.
To me, the fact that the Govt could take control of an airline known for it's excellence till the 1970s by paying less than 2.5 crores at that time seemed like robbery. That they can sell this stake to foreign buyers now to meet their "divestment" goals is again a robbery. If anything, it should be rightfully returned or partially returned to the Tata's. But this Government is formed by people who 'matter' and I'm not one of them yet.
Air India is an airline which does not compromise on safety standards. All the air hostess/hostesses are well trained and very capable. Unfortunately, in India, experience in safety is not a measure of capability. Having younger employees is.
That's a tragedy considering our demographics, but again, I won't comment on that. People choose what they want. As long as they have more experienced crews, I'll continue to support them. The food is great, the check-in process is much better than Etihad, Emirates or Lufthansa. You do not get discriminated against for being a brown skinned Indian (Lufthansa does that). I hope the company is sold to an Indian company so that the cultutural continuity can be maintained.
I see that a few members think that the Govt should make roads instead of running an airline. Think about this- the departments responsible for making roads and running Air India are separate. You won't get better roads or schools or hospitals once the PSUs are sold. The IAS officers usually responsible for messing up things won't change. Air India, under the recent management, was truly capable of transforming itself. Sad that it had to succumb to political exigencies.
I do not believe that the foreign airlines are the best ( having flown many of them ) and I do not think that selling public assets is the best way to shore up Govt revenues. Short term thinking won't beget good results in the long run. People like that and in a democracy , the nation has to succumb.
Government keeps four units out of Air India divestment - The four units, which include Alliance Air, ground handling and MRO subsidiaries, are expected to be hived off and possibly sold by December'18 https://www.moneycontrol.com/news/bu...t-2539013.html Quote:
The government has excluded four of Air India’s subsidiaries from the divestment, details of which were released on Wednesday.
The four units are -
AIESL: A wholly owned subsidiary of AI, primarily involved in the maintenance, repair and overhaul of engines and airframe
AIATSL: A wholly owned subsidiary of AI, primarily involved in ground handling and cargo handling services
HCI: A subsidiary of AI which owns and operates two hotels in Delhi and Srinagar as well as the Chef air kitchen units in Delhi and Mumbai
AASL: Operates Alliance Air, which provides connectivity to Tier II and Tier III cities in India and also links these cities to metro hubs
The government plans to hive off these units through a demerger, or “other appropriate mechanisms", said the memorandum.
Those in the know say that the government has already received interests for AIESL from players like Air Works, among the oldest MRO service providers in the Indian market. International players such as Hong Kong Aircraft Engineering Company and Etihad Airways Engineering could also join the race.
AASL, which runs Alliance Air, is also expected to evoke interest, given its network in the shorter-route destinations in India. The airline flies to four destinations and has a fleet of 15 aircraft. Domestic airlines such as IndiGo and SpiceJet have recently launched services in smaller cities as part of the regional connectivity scheme, known as UDAN. Even new entrants like Air Odisha could be in the reckoning.
The government is expected to come out with more details on the sale of these units in the coming weeks. “The plan is to complete the demerger of these units by December, by when the divestment of Air India is aimed to be concluded,” said an executive from the industry.
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Schedule of dates announced:
As an outsider to the industry and a tax payer I welcome this step which should have been done much earlier before allowing AI's debt to balloon to 5 billion which in a sense is 5 billion of tax payers money lost.
The problem with our government running PSUs is basically that they seem to have a cavalier attitude with tax money and treat PSUs as instruments to promote vote banks more than either kick start a nascent industry or provide worth while competition to keep in check ballooning prices while still maintaining good service levels.
The great success story has been Maruti where the government investment ensured that a very competitive company was created which directly resulted in the competition having to provide good quality, reliable products. The government was smart enough to be hands off and also to dis-invest at the right time.
If there is no political will to do what it takes to turn around the airline, then is there any rationale for holding on to what essentially is a not a fundamental service? Good move if quite late i'd say.
Drive on,
Shibu.
Let me share an inside view on this. This divestment will be beneficial for Air India. I can surely say that a lot of insiders (ex employees, current employees that I have interacted with) are welcoming this move.
I work in the IT industry (airlines domain), with PRA and Misc billings as the main project. Air India is the primary account that I look into, along with their subsidiary - Air India Air Transport Services Ltd (AIATSL).
Over the last 5 years, I have seen a marked difference in their processes. While initially we were used to interacting with "rigid" employees, who were not ready to budge from their views or were ready to adapt; now, we see a lot of young, talented employees working for the carrier. These young guys are interested in using newer software and technologies, and really want to turn around the fortunes of this ailing national carrier. They go out of the way to ensure that all the leaking revenues are fixed, costs are getting reduced and their business processes are tightened. All this newer talent will only help the carrier get back on its feet quickly; if the government relinquishes its 76% stake.
In a way, I see this as a welcome change, where the new has replaced the old. If Tatas backed by Singapore airlines, wins the bid, it will be a great proposition for Air India. I know how "strict" Singapore Airlines is WRT their processes/norms :rules:, so if that gets handed down to Air India, it will be excellent for AI.
Quote:
Originally Posted by Nissan1180
(Post 4379460)
To me, the fact that the Govt could take control of an airline known for it's excellence till the 1970s by paying less than 2.5 crores at that time seemed like robbery. That they can sell this stake to foreign buyers now to meet their "divestment" goals is again a robbery. If anything, it should be rightfully returned or partially returned to the Tata's. But this Government is formed by people who 'matter' and I'm not one of them yet.
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Entirely agree to the points raised here. But my mind refuse to forget the many hours of waiting in front of the boarding gate of AI 2 out of 3 times I flew. And the faces of the staffs who refuses to smile even for a compliment or a thanks. Experienced but arthritic staff finding it difficult to push the food trolley across the aisle. Seats that are spacious with very good leg room but spilled food from previous trips.
Though Ministry of Civil Aviation looses the privilege of wasting, let some other more important ministry get that privilege.
These are some things which make me think this divestment is a welcome move, though, my opinion too does not matter.
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