Aviation Sector Update - New era for Indian Aviation By Motilal Oswal
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
New era for Indian Aviation
* M/S Talace, a wholly owned subsidiary of Tata Sons, won the bid to acquire GOI’s stake in Air India, Air India Express, and AISATS (on-ground airport services and cargo handling). Tata Sons would have management control of these assets.
* The transaction does not include non-core assets (land and building) valued at INR147.2b – these would be transferred to Air India Assets Holding Limited (AIAHL).
* The government would receive INR27b in cash and the remaining INR153b would be debt. The Reserve Enterprise value set by the government was INR129.1b. The transaction is expected to be completed by end-Dec’21 (refer to Exhibit 1)
-Financial bidding details and Air India’s debt
* Air India’s debt is attributable to continuous losses. Over 2009–10, GOI infused cash of INR645.8b, with INR556.9b as a GOI guarantee, resulting in the total infusion of INR1202.8b (largely through debt guaranteed by GOI).
* Debt in Air India stood at INR347.8b as of 31st Mar’21 and consol. debt at INR462.4b (INR615.6b on 31st Aug’21).
* GOI would get INR180b from the privatization of Air India; thus, the assets and liabilities transferred to AIAHL are as follows:
* Debt of INR462.6b
* Assets of INR147.2b (plus the aforementioned cash consideration of INR27b)
* Net debt with GOI would be INR288.5b
-Operational and controlling bid details
* The Sales and Purchase Agreement (SPA) allows the bidder to consolidate/ merge the assets, but they would have to maintain 51% ownership during the lock-in period of one year. Strategic sales would be carried out through the Competition Commission of India (CCI) as and when this happens.
* All of the employees would be retained for a period of one year (current employee strength – 12,085 in Air India and 1,434 in Air India Express). VRS to be offered after a year (5,000 employees are expected to retire over next five years). Gratuity, PF, and medical facilities would be offered by the new owner.
* The Air India logos would be transferred to the new owner with a lock-in period of five years. Post the lock-in period, the logos should be retained by the domestic entity only and would not be transferrable to a foreign entity.
* The business continuity clause is for three years, and the new owner has total freedom with regard to operations.
Tata Sons – synergies from synchronization
* As Air India returns to its founding house, Tata Sons would hold three airlines in India – 100% stake in Air India (+ Air India Express), 84% stake in Air Asia India (with a call option on the remaining stake), and 51% stake in Vistara (JV with Singapore Airlines).
* Considering these three airlines, Tata Sons enjoys cumulatively ~26% domestic market share in India (as of FY22YTD). With Vistara (full-service carrier) / Air Asia (low-cost carrier) operating 47/28 aircraft, Tata Sons would have a large fleet of 228 aircraft (including 153 from the transaction) against INDIGO’s total fleet of 277aircraft (the end of 1QFY22).
To Read Complete Report & Disclaimer Click Here
For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412
Above views are of the author and not of the website kindly read disclaimer
