India’s flagship airline may be shutting down if divestment bid fails

• Air India’s debts are reported to be as high as ₹ 700 billion.
  
• The airlines might lose $1-2 billion in FY19/FY20, says CAPA, a consulting firm.
  
• Deadline for bids extended till 31 May 2018.

Air India (AI) may have to shut down based on the findings of aviation consulting firm CAPA India. The bleeding airline went up for sale on 28 March 2018. AI’s debt was ₹520 billion as of fiscal 2017 but the report finds this could be as high as ₹700 billion.

@capa_india tweeted,

Three key themes emerging on @airindiain divestment: 1) Critical that terms in EOI - particularly for labour & debt – are amended, as successful bidder will need to invest in restructuring and absorbing losses for several years, in addition to consideration paid for 76%. 1 of 3

— CAPA India (@capa_india) May 4, 2018

On March 28, the Indian government had issued a Preliminary Information Memorandum (PIM) inviting Express of Interest (EoI) for the strategic divestment of AI, along with the airline's shares in AIXL (Air India Express) and AISATS (Air India SATS Airport Services) from private entities including the airline's employees.

The central government currently owns 100% equity of Air India. In turn, the airline holds full stake in Air India Express and 50% stake in the joint venture AISATS. The government has planned to divest 76% of the its stake in AI, 100% in AIXL and 50% in AISATS.

Three key themes emerging on @airindiain divestment: 3) CAPA estimates AI headed for 2-year losses of USD1.5-2.0 bn in FY19/FY20. Failure to divest could see AI close unless gov't willing to spend taxpayer funds. Far less costly to make offer more attractive to investors. 3 of 3

— CAPA India (@capa_india) May 4, 2018

CAPA also predicted that AI will be at a loss of approximately $2 billion for fiscal 2019 and 2020.

All the big players of the airline industry, including the Tata Group, Indigo and Jet Airways, have reportedly already backed off due to the huge debt and no clarity on the terms offered by the government.

The government has extended the submission for the EOI bids of AI divestment process to 31 May 2018.