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India to invite bids for Air India stake in second attempt to sell state-owned carrier

Government bets improved financials of airline to woo investors this time

Air India has been incurring losses over the years, weighed by competition, surging fuel prices, and high cost of debt servicing.   © Reuters

MUMBAI (NewsRise) -- India plans to soon invite bids for the sale of state-owned carrier Air India, as the government revives privatization of the debt-ridden airline after an earlier attempt failed to evoke any interest from investors.

New Delhi plans to invite expressions of interest for the proposed sale in 10 to 15 days, a senior official at the civil aviation ministry said last week. On Friday, the government said it reviewed Air India's financial performance for the fiscal year ended in March. The financial statement of the carrier is ready and works are on for the consolidated report, the official said.

The government last year shelved its plan to sell a 76% stake in the company, as it was unable to find any bidders for the airline amid onerous conditions. Once a market leader in the country, Air India has been incurring losses over the years, weighed by competition, surging fuel prices, and high cost of debt servicing.

In June, the government revived the plan to divest Air India after the airline's profitability and operational performance improved.

In the previous attempt to sell the Air India stake, a potential buyer was to absorb two-thirds of the carrier's roughly 583 billion rupees ($8.2 billion) debt. The divestment also included selling the carrier's 50% stake in unit Air India SATS Airport Services, a joint venture with Singapore's SATS, and in Air India Express, a discount carrier.

The prospective buyer was also required to stay invested in the airline for three years, safeguard the interest of its about 11,000 permanent staff, and list the carrier on stock exchanges.

After the initial setback, the government now plans to sell 95% stake in the airline, and move out 294 billion rupees of Air India's debt into a holding company, which may also include some of its units.

Analysts have in the past sought for the government to completely exit the carrier, saying any level of equity retention will deter investors.

"The government of India seems to be more determined this time than in 2018," said Kapil Kaul, the chief executive of aviation consultancy CAPA India. "The possible offer to investors will reflect this determination to exit Air India. The clarity on key strategic issues is visible."

He expects the deal to be closed in the next six to nine months.

The stake sale also comes at an opportune time as the grounding of cash-strapped Jet Airways (India) helped the state-owned company improve its financial and operational performance. Jet Airways, once the nation's top private carrier, grounded its fleet as it ran out of cash by mid-April. The airline is currently undergoing insolvency resolution under India's bankruptcy law.

CAPA India's Kaul said he expects "significant interest" in Air India, especially as "market dynamics have changed post Jet Airways' closure."

The shortage of flights pushed up airfares, allowing rivals such as Air India to make a windfall. Credit rating agency Crisil expects domestic air fares to jump 7% to 9% this fiscal year, the biggest gain since the fiscal year 2013.

-- Rituparna Nath and Dhanya Ann Thoppil

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