Etihad cannot go beyond 49% and while Indigo can go for the complete 100%, its current financial state won’t allow. However, chances of an Indigo-Etihad JV buying out crash-bound Air India cannot be dismissed.
As shutdown looms for Air India, expressions of interest from Indigo and Gulf’s Etihad come as a sigh of relief for the struggling national carrier. The Indian government has resigned to the backseat and now Air India’s future hangs in a limbo. While Indigo, being an Indian airline, can bid for a complete acquisition, Etihad is restricted by the FDI (Foreign Direct Investment) figure of 49%.
Heads Up! Air India’s Last Gasp
- Government’s bid to attract buyers
- Indigo’s chances of Air India acquisition
- Chances for Etihad’s bid
- Why an Indigo-Etihad JV makes more sense
- Privatization the only way forward for Air India
- Can the government’s latest attempt succeed?
However, looking at the current state of affairs at India’s largest airline currently, a 100% bid from Indigo looks unlikely. Instead, a joint venture between the two entities would have a better chance at the bail-out that Air India direly needs.
Expression of Interest in Jan 2020
As per the latest reports, the Indian government is set to float the expression of interest in mid-January. While the EoI was earlier expected to go out in December, the government decided to push ahead and wait out the festive season to ensure seriousness from buyers.
EoI was earlier expected to go out in December, but the government decided to wait out the festive season to ensure seriousness from buyers.
The Indian government’s initial efforts to sell off 76% of the Airline failed back in 2018-19. It is now ready to completely sell the airline off. However, the number of potential suitors have been underwhelming.
Air India is unlikely to receive any more interest
While reports in 2019 suggested that Tata Sons and Reliance were in the fray, the interests look to have died out. Similarly, recent roadshows to attract investors from overseas in London and Singapore also failed to garner interest.
An official linked to the developments told ET, “Representatives from these companies have met government officials and, unofficially, shown interest in the national carrier. The Tata Group, however, has not shown any interest yet.”
The official further said, “An airline as big as Air India is unlikely to receive any more interest.”
Why an Indigo-Etihad JV is the best option to save Air India
Indigo is India’s leading carrier today after the demise of Jet Airways and constant struggles at Air India and SpiceJet. However, even with the only viable aviation business model in India, Indigo’s financial fate was less than impressive in 2019.
In the quarter ending in September 2019, the low-cost carrier posted larger than estimated losses. Losses went up to INR 10.7 billion from INR 6.5 billion rupees in the same period a year ago.
That means aiming for a 100% stake would be folly for Indigo at this stage. Furthermore, Indigo is mostly interested in the overseas slots of Air India and not the domestic operations.
On the other hand, Etihad currently has no stake in India’s domestic aviation market after Jet Airways shut shop. While Etihad is restricted to a 49% stake, it can align with the Abu Dhabi Investment Authority (ADIA) or National Investment and Infrastructure Fund (NIIF) as per reports.
But an Etihad-Indigo joint venture which brings aviation expertise from both ends into Air India makes more sense.
Can the Government’s Privatization effort for the Maharaja succeed in 2020?
The government is adamant of getting Air India of its hands this time. The clock is ticking for the national carrier which will be forced to cease operations in June 2020 if the latest effort fails to formalize.
Civil Aviation Minister Hardeep Singh Puri has already said that privatization is the only option to save the national carrier. Air India’s current debt is approximately INR ₹60,000 crores. At least 12 narrow-body aircrafts belonging to the national airline have been grounded.
Making Air India attractive for Investors
To ensure that the bid goes through, the government is attracting buyers with several relaxations. This means restructuring of debt and liabilities and VRS (Voluntary Retirement Scheme) option to help slash employee costs.
Furthermore, the new plan includes the low-cost international subsidiary Air India Express. It also includes 50% stake in Air India Singapore Airport Terminal Services. As part of the deal, the government will pay off INR 22,000 crore dues to vendors ahead of a sale. This includes airports and oil companies. It will also waive the working capital debt of INR 15,500 crore.
Government’s waivers and relaxations will bring down Air India’s debt to INR 20,000 crore, making it attractive for buyers.
This will bring down the airline’s debts to INR 20,000 crore. This makes crash-bound Air India a much more viable acquisition if in case an Indigo-Etihad JV does materialize.