The Indian Government has offered to sell its entire 100% stake in Air India (AI, Mumbai Int'l), a Preliminary Information Memorandum inviting expressions of interest, released on January 27, has clarified. Bidders would, however, have to take on USD3.26 billion of debt, according to the new terms.

An attempt to sell a controlling 76% stake in the airline in 2018 attracted no bidders. At the time, the size of the stake was seen as a factor that put off potential buyers.

The transaction is defined in the document as: “Strategic disinvestment of AI [Air India] by way of the transfer of management control and sale of 100% equity share capital of AI held by GOI [Government of India] which will include AI’s shareholding interest of 100% in Air India Express Limited and 50% in Air India SATS Airport Services (AISATS) Private Limited.”

Air India Express is a wholly-owned subsidiary of Air India and operates twenty-five B737-800s (10 owned, seven on finance-lease, and eight on dry-lease). It has its own Air Operator’s Permit (AOP) and provides low-cost flights between India and destinations in the Middle East and South East Asia and also within India.

For its part, AISATS is a 50/50 joint venture between Air India and SATS Limited, Singapore. It provides ground handling and cargo handling services at the airports of Delhi Int'l, Hyderabad Int'l, Bangalore Int'l, Thiruvananthapuram, and Mangalore.

Jitendra Bhargava, a former executive director of Air India, told the BBC: “This is a very welcome change from last time to entice private players to bid for the carrier.”

According to the document, Air India has 146 aircraft and owns 56% of its total fleet. Its 4,486 domestic and 2,738 international landing and parking slots are also listed.

However, the carrier is burdened with a market share that has steadily eroded over the last decade as competition has grown from local LCCs.

The document pledges “reduced debt liability post-disinvestment to help realise significant profitability”. When the government approved a proposal to privatise Air India on January 7, ministers expressed approval to transfer an additional INR200 billion rupees (USD2.8 billion) in debt and liabilities to a special purpose vehicle (SPV), Air India Assets Holding Ltd., to make the carrier more alluring to potential buyers. INR294 billion (USD4.1 billion) had already been transferred to the SPV.

However, being asked to take on the remaining USD3.26 billion of debt “could be a challenge because it is a very large portion of the debt to be taken care of when you consider that they have repayment schedules over eight to ten years on around 70 aircraft,” SBICAP Securities analyst Mahantesh Sabarad told the BBC. “Buyers will also need to infuse substantial funds into the airline, so we expect the start-up costs for anyone getting into this to be high.”

Reducing the size of Air India's employee base, currently numbering more than 14,000 people, could also be a challenge.

Eligible bidders, either stand-alone or consortiums, must have a minimum net worth of INR35 billion (USD490.75 million) or an equivalent in immediately available investment capital. Varying degrees of shareholding control are also described in the document given Indian law restricts the extent to which foreign airlines can control Indian-flagged carriers.

The deadline for the submission of EOIs is 1700L on March 17, 2020.