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The eligibility norms for bidding in the Air India sale have been tweaked considerably compared to the earlier bids. It now includes relaxation in minimum net-worth to bid (from ₹5000 to 3,500 crores), affiliate clause for foreign entities to bid, minimum shareholding relaxation (from 20 to 10%), no profitability clause, Air India’s debt has been hived off into a special purpose vehicle (which stood at ₹58,283 crores in 2018-19) and a few more to invite maximum bids.

The goals of disinvestment are to turnaround the national carrier’s fortunes by improving operational efficiencies and implement stricter fiscal discipline to the struggling airline, which has adequate personnel, fleet, and infrastructure. The turnaround is possible if the prospective bidders have the necessary freedom to re-strategize the direction of the airline. With a 100% sale, it appears that the prospective owners will be given complete flexibility to utilize resources according to their strategy without any interference. The key challenge will be negotiating and handling the employee trade unions while ensuring productive discussions that can satisfy all key stakeholders. The outcome of this sale will play a key role in the disinvestment strategy of the government and can provide them a road map to follow for other public entities.

Restriction on foreign bidders can potentially turn away global airline groups (IAG, Lufthansa, etc.) from taking an interest. The current uncertain economic scenario, both globally and in India, can potentially further complicate investor decision making. Considering the above scenario, the ideal way forward would be to ensure that the sale is open to global investors with minimum stipulations.

The key takeaways for potential buyers will be ‘rare-to-get’ international slots in Europe, including slots at crucial airports like Heathrow, in addition to newly acquired slots in the Middle East (in Doha and Al Najaf). Air India has key airport slots at major international airports, and Air India Express has been consistently profitable since 2016. These factors can make the offer attractive for existing Indian airlines like Vistara (Full Service Carrier, partly owned by Tata Sons) or Indigo which is being targeted by Qatar Airways for a stake, although Qatar Airways previously mentioned their disinterest in Air India.

A successful sale will stabilize market conditions, especially capacity; however, in a bid to increase its market share, the restructured Air India may set the stage for a potential price war.

For more information on this topic or to schedule an interview/interaction with our spokesperson, please email Priya George or Srihari Daivanayagam at priyag@frost.com/srihari.daivanayagam@frost.com

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