International
NRIs can now own up to 100% of Air India
In renewed efforts to divest Air India, the cabinet decided on Wednesday to allow non-resident Indians (NRI) to control up to 100% of the common carrier. The move is intended to spark increased interest from investors at a time when the government has requested preliminary offers for the sale of its entire 100% stake in the airline. At present, NRIs are only allowed to take 49% in Air India, and foreign direct investment (FDI) in the state-owned company is capped at 49% by approval of the government.
For private airlines, while up to 100% FDI is allowed, foreign carriers can only pick up 49%, while foreign investors other than airlines can buy one whole carrier.
Allowing an investment of 100% of NRIs in Air India would also not be contrary to the standards of substantial ownership and effective control (SOEC). NRI investments would be treated as domestic investments. According to the SOEC framework applied to the global aviation industry, a carrier that flies abroad from a given country should be largely owned by the government of that country or its nationals.
The divestment of Air India would not only increase the government's non-tax revenues in the next fiscal year, but would also put an end to the lingering losses. The airline has not made a profit for more than a decade and forced the government to periodically inject massive capital to stay operational. The government has set an ambitious divestment target of Rs 2.1 lakh crore for FY21, compared to a revised Rs 65,000 crore for this financial year.
After an unsuccessful attempt to divest Air India in 2018, the government launched offers in January this year again to privatize the airline. Drawing lessons from the 2018 failure, the preliminary briefing note indicates that 100% of the shares will be discharged, unlike 76% offered in the previous attempt. However, the new owners should continue to use the brand name "Air India". The government also retained a provision that substantial ownership and effective control of the airline must remain the property of an Indian entity.
Besides Air India, the government is also discharging its 100% stake in its low-cost subsidiary, Air India Express (AIXL), and 50% in AISATS, which provides freight and groundhandling services at major Indian airports. The last submission date for EoI is March 17, while qualified bidders would be notified by March 31.
In addition to reducing the deficit airline debt, the government has made a number of changes to the eligibility criteria for potential bidders in its attempt to soften the deal. For example, the debt of Air India and its low-cost subsidiary has been reduced to approximately Rs 23,286 crore from Rs 60,000 crore. In this way, the debt left to the company is only due to the purchase of aircraft, which is contrary to government guarantees. However, once the process of selling to a private entity is complete, these guarantees would disappear.
In addition to the debt of Rs 60,000 crore, the airline and its subsidiary have commitments worth Rs 25,000 crore. Of this amount, the potential buyer would only have to take back Rs 9,700 crore backed by assets. In this way, the buyer should take over the debt and debts worth Rs 32,986 crore, compared to around Rs 85,000 crore earlier. This means that the potential buyer should now assume only 39% of the total debt and liabilities, unlike 61% in the 2018 tender documents. Vistara, Bhaskar Bhat, said this week that its airlines are evaluating Air India and will soon decide to bid.
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