High hopes?

High hopes?

Context

Divestment of Air India (AI)

What has happened?

• Government has decided to divest 76% of its stake in AI
• A 100% stake is being offered in its subsidiary Air India Express, and a 50% stake is on offer in its ground handling operations arm
• Other subsidiaries, such as Alliance Air, Hotel Corporation of India, which owns the Centaur properties in New Delhi and Srinagar, Air India Air Transport Services and Air India Engineering Services, are not being sold — they will be transferred to a special purpose entity along with roughly a third of AI’s Rs. 48,781 crore outstanding debt

What is being offered?

Effectively, the government is offering a majority stake in AI and AI Express with management control, as well as a cumulative debt burden worth Rs. 33,392 crore

Issues in front of buyers

• Refinancing the debt burden: To offset the huge debt, a refinance strategy will be needed
• Retaining of 24% shares by government: Union government will still have a 24% share in AI, which will possibly come with one or two bureaucrats nominated to the airline’s board of director

Problems faced by AI

• High debt burden and a resultant high interest burden
• Operational inefficiencies
• Poor management