Air India

Air India can breathe a sigh of relief. The government has received around 150 queries about Air India sale from companies, which include foreign and Indian carriers, as well as non-aviation entities.

The queries that the government has received from these companies are mostly about the value of debt, employees future and the management of the national carrier. Business Consultants, Ernst And Young(EY) are acting as transaction advisors for the government and will respond to these queries. They will also seek clarification from the government in case there are any changes in the terms of sale.

This comes as a great news for the airline and government, as major players such as Indigo, Jet Airways and Tata Group ruled themselves out for acquiring stake in the airline. However, there is a chance that IndiGo might rethink their decision in case the government changes its policies regarding the airline sale.

Last week the government announced that firms not related to the aviation industry can also bid for Air India as long as they have the financial capability to take over and run the airline. Foreign airlines such as Lufthansa, Air France, KLM and Private equity firms BlackRock and Temasek are amongst the entities which have expressed interest and sent queries about the airline.

According to the terms of the deal, the government has to sell 76 percent stake in Air India along with its low-cost subsidiary Air India Express. 50 percent stake of AISATS is also up for sale.AISATS is a joint venture between Air India and SATS Limited, who is a leading airport service and food solutions provider in Asia.

The last date of submitting queries by interested parties was April 16^th 2018. EY will respond to the queries by April 30^th 2018. The Last date for submitting the formal Expression of Interest(EoI) by prospective buyers is May 14^th 2018 and qualified bidders will be informed by the government by May 28th 2018.

The Airline’s list of problems seem to keep increasing every week. Air India is facing a cash crunch on a monthly basis, which is affecting the maintenance work of its aircrafts. As a result, several aircrafts are lying unutilized.

According to the civil aviation ministry, due to lack of funds, Air India is not being able to purchase all the spare parts it needs. The airline has been showing a deficit in cash on a monthly basis, which equals to Rs 200 Crore to Rs 250 Crore.

The ministry informed the Parliament’s Public Accounts Committee(PAC) that shortage of cash has been responsible for aircrafts not being operational despite a Turnaround Plan (TAP) which was implemented in 2011. Fleet expansion has also been hit by viability issues and an ongoing CBI probe into previous acquisitions on the airline.

The PAC is the governing body which is looking into Air India’s functioning after the government decided to disinvest 76 percent stake in the airline.

Replying on the measures taken by the airline to smoothen maintenance of its aircraft, the ministry told PAC that earlier the aircraft engines were sent abroad for overhaul and repair, but now these functions are performed domestically. The airline is also regularly talking to its suppliers to remove the credit hold so that a smooth supply of spares is maintained.

The ministry also stated that aircrafts acquired on lease were grounded for around two months at the time of redelivery as a number of conditions had not been satisfied by the airline.

Air India’s cash flow remains tight as total debt in the airline’s books stands at around Rs 49,000 crore. One of the objectives of the turnaround plan was to accumulate Rs 5,000 crore by selling properties, which has not happened and is a reason behind Air India’s debt remaining too high.

Though Air India’s turnover has been increasing, and the TAP and financial reconstruction plan have helped improve on-time performance, load factor and aircraft utilisation, cash losses remain high despite a declining trend. The national carrier was also planning to offer a VRS (Voluntary Retirement Scheme) to its employees. The plan was dropped as it was not financially feasible.

A turbulent Air India flight from Amritsar to Delhi injured three people and caused a window panel inside the aircraft to break on Thursday.

Here are the details of the incident-

• Air India’s AI 462 had a turbulent flight for 10 to 15 minutes during climb phase from 8,000 feet to 21,000 feet.
• The turbulence on the flight was such that the head of a seated passenger, who possibly did not have his seatbelt fastened, hit the overhead cabin because of a bump. The person suffered injuries.
• The inside of a window panel on Seat 18A came off. However, the outside window did not break and there was no de-pressurization.
• Some oxygen masks also dropped during the severe turbulent phase of the flight.
• The overhead panel cover of a seat got cracked during the incident.

On landing in Delhi, the emergency response team took three passengers to the hospital. According to the officials, the passenger whose head hit the overhead panel got stitches. Two passengers suffered minor injuries. They took their connecting flights after getting the treatment.

Besides Air India, aviation regulator Directorate General of Civil Aviation (DGCA) and Aircraft Accident Investigation Board (AAIB) are looking into the incident as to why it happened.

In 2014, a Singapore Airlines flight faced a similar situation while it was landing in Mumbai. About 22 passengers were injured.

A 50-second long video clip of happenings inside that flight showed an air hostess trying to fix the window panel that came off and helping an elderly passenger seated on that seat.

Here is the link to the video

The government has opened the sale of Air India to firms outside the aviation sector, stating that companies having sufficient financial backing and the ability to run the airline could buy the 76% stake on sale.

This announcement was made yesterday by Ministry of Finance after many airlines in India developed cold feet to bid for Air India due to the tough conditions laid down by the government and doubts about how much the airline is actually worth. Domestic carriers IndiGo and Jet Airways have indicated they won’t be bidding for the airline unless the current bidding conditions are changed.

According to the secretary of Department of Investment and Public Asset Management (DIPAM), Mr. Neeraj Gupta, the eligibility of any potential bidder is based on its financial capability and does not require any prior experience in the aviation industry. The main criteria is to have the financial backing and the capability to turn the airline around.

There have been several queries from foreign airlines, private equity and venture capital investment firms for the privatisation of Air India. The VC and PE firms have the option of partnering up with other domestic companies to bid for the 76% stake in the airline.

According to the bid document released last month –

• The investor’s net worth should be more than Rs 5,000 crore
• The investor should have a track record of reporting profit after tax (PAT) in three of the previous five financial years
• The government would retain 24% in the airline and the prospective investor is obligated to list the airline within a specified time-frame.
• The last date for submission of expression of interest for Air India is May 14.
• Of the Rs 60,000 crore liability of the airline, the investor would have to take over about Rs 33,000 crore debt

Employee unions are concerned over the job security of its employees’ once the deal is done and the airline is privatised. The government has assured them that the company which will take over the airline will follow the ‘best industry practices to ensure that the jobs of the employees are safeguarded. Air India and its two other units up for sale have 11000 employees working for them.

Allowing investors from other industries to partner with business in India for bidding, will widen the pool of potential bidders for the airline and may lead to an intense bidding war in the future. But, we will surely be able to know who has control over the 76% stake in Air India, 100% stake in Air India Express Ltd and 50% stake in Air India SATS Airport Services Pvt. Ltd by next month.