The Indian government is trying to make its struggling national carrier an attractive acquisition target by selling off a profitable subsidiary

• The government will divest a 100% stake in Air India’s profitable ground handling unit, Air India Air Transport Services (AIATS), and will use the proceeds of the sale to pay down the airline’s debts.
  
• The decision is part of a larger turnaround plan that will see the government transfer around ₹300 billion of the airline’s short-term debt and certain non-core assets into a separate entity.
  
• The government needs to make the heavily-indebted airline an attractive acquisition target following a failed sale earlier this year.
  

India’s central government is not ready to give up on its loss-making national carrier, Air India.

The government is moving ahead to divest a 100% stake in Air India’s profitable ground handling unit, Air India Air Transport Services (AIATS), according to RN Choubey, the Secretary of the Ministry of Civil Aviation.

The reason for the sale? The government needs to make the heavily-indebted airline an attractive acquisition target following a failed sale earlier this year. However, as opposed to bailing out the airline at the expense of taxpayers, the government will use the proceeds of the sale to pay down Air India’s debt and interest liabilities.

The government had tried to sell a 76% stake in the airline this past summer, but it received zero bids by the 31 May deadline. The primary reasons were the government’s decision to retain a 24% stake in the airline as well as the high amount of debt a buyer would have had to inherit, which was estimated to be around 70% of the airline’s total debt burden of ₹488 billion.

Consequently, the government decided to focus on restructuring the airline’s operations while adopting a wait-and-see approach with regards to the divestment. It has been infusing funds in small amounts in Air India in order to meet its working capital needs like paying salaries and suppliers.

The decision to sell off Air India’s ground handling unit is part of a larger turnaround plan wherein the government will cut operating costs, sell land holdings and transfer around ₹300 billion of the airline’s short-term debt and certain non-core assets into a special purpose vehicle called Air India Assets Holding.

The sale document will only be released once AIATS is hived off into this separate entity. The actual purpose of the special purpose vehicle is to service more than half of Air India’s debt by selling off its assets.

The overall goal of these actions is to generate more enthusiasm from prospective buyers. The government still intends to privatise Air India as opposed to liquidating it or worse, maintaining complete ownership -- certain to be a drain on the Exchequer.


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