The sale of debt-ridden Air India Ltd, Prime Minister Narendra Modi’s most high-profile privatisation plan, may be in jeopardy as Jet Airways Ltd became the second potential suitor to opt out of the race, according to KPMG.
Jet Airways decided against participating in the bidding process for Air India, the carrier’s Deputy Chief Executive Officer Amit Agarwal said in a statement. “Considering the terms of the offer in the information memorandum and based on our review, we are not participating in the process.”
“It’s disappointing and puts the whole exercise into a bit of a jeopardy,” Amber Dubey, partner, and head of aerospace and defence at KPMG, told BloombergQuint.
That comes days after Interglobe Aviation Ltd, the only airline to have publicly shown interest in buying parts of the national carrier, said it’s no longer keen on the asset.
That’s because the government plans to sell 76 percent of Air India and 100 percent of its budget arm Air India Express and 50 percent of the ground handling unit together. And the potential buyer will also have to take on more than half of Rs 54,000-crore of debt at Air India, which has been surviving on a government bailout.
“From day one, IndiGo has expressed its interest primarily in the acquisition of Air India’s international operations and Air India Express,” Aditya Ghosh, president of InterGlobe Aviation, said in a statement earlier this month. “That option is not available under the government’s current divestiture plans for Air India.”
Jet Airways’ statement pointed to similar reasons. The news was first reported by the Financial Times newspaper.
A number of conditions such as the government retaining the 24 percent stake, keeping Air India at an arm’s length, conditions on the shareholding pattern, and a mandatory initial public offering sometime after the sale may be keeping potential buyers away, Dubey said. The “big looming pressure of the debt” and manpower issues at the State-owned airline add to the challenges, he said.
The carrier has nearly 20,000 permanent and contractual employees.
We hope somebody comes and takes over Air India, or the government may decide to simplify some of the bid conditions that the industry finds challenging.Amber Dubey, Partner & Head of Aerospace and Defence, KPMG
Air India made an operating profit of about Rs 3,600 crore in the year through March 2017, primarily due to a favourable slump in oil prices. It still posted a net loss of Rs 5,770 crore, Minister of State for Civil Aviation Jayant Sinha said in a Parliament reply on 8 February.
(This article was originally published on BloombergQuint.)
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