Indian Government initiates work on privatization of Air India ex-units

The Indian Government has begun the work on privatizing two erstwhile subsidiaries of Air India, several months after closing the sale of the debt-laden national carrier. The Department of Investment and Public Asset Management (DIPAM) has kickstarted the sales process of Air India’s former ground handling and engineering units by conducting investor meetings and roadshows to gauge the bidders’ interest. The privatization of two of four Air India ex-units, i.e., AI Engineering Services Limited (AIESL) and AI Airport Services Limited (AIASL), is slated to be completed this fiscal.

Selling two Air India subsidiaries.

In January this year, the Government of India handed over the ownership of loss-making Air India to the salt-to-software conglomerate Tata Group. The acquisition gave the new owner100% equity shares in Air India and Air India Express and a 50% stake in ground-handling company AISATS (Air India Singapore Airport Terminal Services).

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Meanwhile, the other subsidiaries of Air India- engineering unit AIESL, ground-handling unit AIASL, domestic airline Alliance Air Aviation Limited (AAAL), and Hotel Corporation of India Limited (HCL) remained under the division of Air India Assets Holding Limited, the government-owned special purpose vehicle for holding the carrier’s non-core and non-operational assets and debts.

Two months after closing the transfer process of Air India, the Government announced its plans to sell those ex-units and non-core assets valued at around Rs 15,000 crore ($1.8 billion). By November, the officials plan to invite an expression of interest (EoI) from interested bidders for AIESL and AIASL.

Conducting roadshows

 To gauge the interest in former AI ground handling and engineering units, DIPAM has started the exercise of investor meetings and road shows which have seen the participation of major players like Bird group and Tata Sons for AIASL and the Adani group and Tata Sons for AIESL subsidiary. According to the sources, foreign companies like Swissport and Celebi Aviation Holding have also shown interest in the ongoing road shows.

Qries

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The roadshows will be influential in making the sale process simple and fast as feedback from the industry will be incorporated to structure the sale. The objective of conducting roadshows is to spark interest and feedback from the participating investors so that EoIs can be designed to get more responses. The Government aims to sort out the sales transaction of AI Engineering Services and AI Airport Services by this fiscal year. Consultancy firm EY, which has previously been involved in the Air India privatization deal, has been selected as the transaction advisor for the sale of these non-core assets.

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Once the Government completes the privatization of engineering and ground handling subsidiaries together, it will then proceed with the sale of Alliance Air and all of its real estate assets. The overall privatization of ex-India units will help the Government recover some money it spent on Air India. The national airline was never profitable after its merger with Indian Airlines in 2007-08, and in the last financial year, it reported a loss of Rs. 7071 crores (Rs 27 crore loss estimated daily).

AIASL and AIESL

AI Airport Services Limited is a leading Indian ground handling service provider, offering services to 82 major airports in India, barring Delhi, Bengaluru, Hyderabad, Mangalore, etc. In the financial year 2020-21, it handled 51,774 flights of Air India and its subsidiary companies, way below its FY2020 handling of 133,668 flights. Furthermore, it provided handling services to 26,567 flights of scheduled and non-scheduled customers in the fiscal year 2021 in comparison to 25,050 flights the previous year, i.e., FY2020. Battered by the pandemic, AIASL suffered a loss of $25 million in FY21, although it was able to gain a net profit of Rs 50 crore in FY2020.

Established in 2013, AI Engineering Services Limited is the maintenance subsidiary of Air India that provides a one-stop solution for MRO services at major airports with a pan India footprint, i.e., Delhi, Mumbai, Hyderabad, Kolkata, Nagpur, etc. It is a great asset with a trained workforce, and the biggest DGCA-approved MRO set up offering professional service for the fleets comprising 76Airbus A320 family aircraft, 72 Boeing aircraft, and 18 ATR jets.

The profit-making AIESL earned revenue of Rs 1185 crore and a net profit of Rs 12 crore in FY2021. The financial performance was even better in FY2020 when it reported a net profit of Rs 24 crore from a total revenue earning of Rs 1427 crore.

The domestic carrier Alliance Air struggled with net losses of Rs 360 crore and Rs 235 crore in FY21 and FY20, respectively.

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