Government set to halve Air India baggage before selloff

The government is all set to repay a big chunk of Air India’s loans, removing a key hurdle in the privatisation of the stricken public sector carrier that was once the pride of India’s skies.

It has finished raising Rs 22,000 crore through issue of bonds, of which Rs 7,985 crore was raised on Thursday. This along with the transfer of Rs 7,464 crore of local bonds to the accounts of Air India Asset Holdings (AIAHL) from Air India will almost halve the carrier’s nearly Rs 58,000 crore loans.

The government plans to sell Air India along with low-cost international subsidiary Air India Express and its 50% stake in ground handling company Air India Singapore Airport Terminal Services Ltd (AISATS). Subsidiaries like regional airline Alliance Air, Air India Engineering Services Ltd (AIESL) and ground handling arm Air India Air Transport Services Ltd (AIATSL) will be sold separately.

“These decisions have been taken, as it is going to be the same as last year and there is no change in the format,” said a senior government official, who did not want to be identified.

The Air India board is set to meet on October 22 to clear the consolidated account statement for 2018-19, which will start the process of divestment. Expressions of Interest (EoI) will be issued in November.

“We had a target of raising money at a coupon rate of less than 8% and our rates have been below 7.5% in all the three phases,” said the official.

Of the Rs 22,000 crore raised by AIAHL — a special purpose vehicle to house AI loans and assets — Rs 15,000 crore will be used to repay working capital loans and the rest will be for clearing aircraft loans.

Air India will be left with about Rs 28,000 crore loans on its books. Of this, about Rs 12,500 crore are against aircraft loans — Rs 5,500 crore against Airbus aircraft whose repayment is due in 2030-31 and bridge loans of Rs 7,000 crore for six Boeing 787 Dreamliners. This Rs 7,000 crore will be refinanced either through sale and leaseback or outright purchase. The rest Rs 15,500 crore are working capital loans.

The government is also considering waiving the total working capital debt of the company before it is divested, ET had reported in September.

The proposal will require approval from a committee headed by home minister Amit Shah and with aviation, finance and commerce ministers as members.

Another official said that the government has studied all reasons raised by the industry after the government attempt to divest a 76% stake in Air India drew a blank last year due to various reasons. These included staffing levels, employee medical benefits as well as flying privileges for workers and their families even after retirement, along with its towering working capital debt.

The government is now not only looking to fully exit the carrier but also cutting down working capital and allowing future owners to lay off employees after a period of one year post divestment.

“Airline business should not have working capital debt, as airlines fund their working capital debt through earnings from the sale of tickets for future travel. The government is looking at a model to reduce working capital debt but the final approval is to come from the ministerial committee,” said another official.