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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).

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