Just under a week after it chose Tata Group to acquire Air India (AI, Delhi International) and its Air India Express (IX, Delhi International) subsidiary, the Indian government is now planning to sell off its domestic carrier, Alliance Air (India) (9I, Delhi International), informed sources have told BusinessToday.

According to the report, Air India's board will meet on Thursday, October 14, to consider the matter. The meeting will be chaired by Air India Board chairman Rajiv Bansal, who is also Permanent Secretary in the Ministry of Civil Aviation.

"Some terms of the proposal require further discussion. The plan is to divest the entire 100% shareholding. It is expected that the formal Board nod will happen at the meeting," the sources said.

Founded in 1996, Alliance Air operates eighteen ATR72-600s on scheduled flights that connect 37 Tier II and III cities across India to major bases at each of Bengaluru International, Chennai, Delhi International, Hyderabad International, Jaipur, Kolkata, Mumbai International, and Vishakhapatnam.

India's Ministry of Finance expects the Alliance Air sale, along with the divestiture of other subsidiaries and non-core assets, to generate a total of INR170 billion (USD2.25 billion) crucial to national coffers given diminished tax inflows as a result of repeat COVID lockdowns.

Meanwhile, the Indian government has now drawn up a letter of intent (LOI) for Tata Group to sign in regards to its planned purchase of Air India, Air India Express, and a 50% stake in airport services and groundhandling firm Air India SATS.

“LoI issued to the successful bidder in the strategic disinvestment transaction of AI (Air India). [Share Purchase Agreement] SPA will be signed soon," Tuhin Kanta Pandey, secretary of the finance ministry’s department of investment and public asset management (DIPAM), said via social media.

Through its wholly-owned Talace Pvt. Ltd subsidiary, Tata Group bid INR180 billion (USD2.396 billion) for the package of entities of which INR27 billion (USD359.5 million) will be paid to government in cash. The conglomerate will also assume INR153 billion (USD2.037 billion) worth of Air India debt while the state will take on the remainder of INR462.62 billion (USD6.13 billion).

To fund its purchase, Tata Group may raise up to INR150 billion (USD1.99 billion) through a syndicated loan, people familiar with the matter told India's Economic Times. The loan may be raised with a three-year maturity offering about 7% interest, the sources added.

The State Bank of India (SBI) is expected to lead the proposed syndication and has already issued a bank guarantee. Foreign banks including Standard Chartered, Citi, Deutsche, JP Morgan, and Barclays among others have also been courted. “If foreign banks are not entertained, SBI will remain the key banker,” one of the sources said.