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Tata submits bid to buy loss-making Air India

Government says process to sell the airline is moving to 'concluding stage'

The Indian government says its effort to sell off Air India is in the final stages.   © Reuters

NEW DELHI -- Tata Group, India's largest conglomerate, has submitted a bid to buy Air India as the government says its effort to finally sell the debt-laden national carrier is entering its "concluding stage."

"The Tatas have submitted [their] financial bid for Air India," a spokesperson for the salt-to-software conglomerate told Nikkei Asia on Thursday, without giving further details.

A government source also confirmed Tata's bid amid reports that Ajay Singh, founder of budget carrier SpiceJet, has also submitted a bid.

The government has yet to reveal the names of prospective buyers, though it announced that it had received offers.

"Financial bids for Air India disinvestment [have been] received by [the] Transaction Adviser," Tuhin Kanta Pandey, secretary in the Department of Investment and Public Asset Management, tweeted on Wednesday evening. "Process now moves to concluding stage."

This is the government's second attempt to sell Air India after a previous bid failed to draw any potential buyers. It extended the deadline for expressions of interest several times in 2020 amid the coronavirus pandemic, following which it received initial bids in December.

When it again began seeking buyers in January last year, the government said that even after infusing about 305 billion rupees ($4.15 billion) into the airline since 2012, Air India had continued to lose money and had accumulated a debt of about 600 billion rupees.

Air India has incurred losses since its 2007 merger with fellow state-owned domestic carrier Indian Airlines, weighed down by competition from private budget airlines, as well as rising fuel prices and high debt-servicing costs.

The airline reported a net loss of 79. 8 billion rupees in the financial year ended March 2020, the government reported in August, compared with losses of 85.6 billion rupees the year before and 53.5 billion rupees in the financial year ended in March 2018.

On a provisional basis, Air India's fix assets stood at 400.78 billion rupees for the year ended March this year, including 178.72 billion rupees on account of right-of-use assets, namely leased aircraft and land.

"The enterprise value set for bidding has not been determined so far," the government informed Parliament.

In its first attempt to sell Air India, the government drew no expressions of interest to divest a 76% stake. Now it is putting all of its 100% stake on offer. The plan also includes selling off the carrier's budget arm, Air India Express, and its 50% stake in Air India SATS Airport Services, a ground-handling joint venture with Singapore's SATS.

When launching the second sale attempt last year, the government said Air India, along with Air India Express had 146 aircraft in its fleet, 82 of which were owned by it. Air India covered 98 destinations -- 56 domestic and 42 international -- and offered 75 additional destinations through its secondary network of code-share operations, it added.

If Tata acquires the airline, it would expand the group's aviation business, which already includes budget carrier AirAsia India and full-service airline Vistara, run as joint ventures with Malaysia's AirAsia and Singapore Airlines, respectively. It would also mark Air India's return to the conglomerate after nearly seven decades. The airline was founded by Tata in 1932 before being nationalized in 1953.

"The Government of India remains committed to the privatization of Air India, showing strategic resolve to conclude the transaction as a priority," according to the CAPA India Airline Outlook FY2022. "However, the reality is that the second [COVID] wave has increased industry challenges significantly and will potentially increase the liabilities of Air India to around an estimated $20 billion by FY2025."

Taking into account estimated losses in the current and previous fiscal years, Air India's liabilities will amount to over $16 billion, it said. "Aside from the existing liabilities, the airline is likely to incur closer to $4 billion of losses during FY23-FY25. Hence, the equation from an investor's perspective is a potential liability of around $20 billion before the business turns around."

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