Air India to fetch better valuation if sold with zero debt, say bidders
With the government looking at the option to sell Air India with zero debt, bidders said the airline would fetch a far better valuation as almost Rs 5,000 crore of finance cost would be knocked off the airline’s costs.
“After the zero-debt sweetener, the airline looks attractive as it will be easier to turnaround the airline,” said one of the potential bidders for the airline. Although the coronavirus pandemic has hit the valuations of airlines world-wide, the airline will be able to fetch a good bid for the government, he added. For FY19, Air India’s finance cost was Rs 4,896 crore on a debt of Rs 60,000 crore as compared to Rs 4,651 crore in FY18 (see chart). The airline reported a loss of Rs 2,570 crore in the June quarter of FY21 due to nationwide lockdown imposed by the government to curb the spread of the pandemic.
According to the the earlier plan, a debt of Rs 23,286 crore was to remain with AI and AI Express Ltd, while the remaining debt of AI and AIXL was to be transferred to AIAHL (Air India Asset Holdings).
With the coronavirus pandemic hitting the potential bidders, the transaction advisor to the government has suggested selling the airline with zero debt.
The bidders said absence of latest financials for the fiscal 2020 was a handicap as all their projections were based on FY19 financials.
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Apart from the Tatas, a US-based fund, and the Hindujas had evinced interest in the airline in the past.
Soon after the coronavirus pandemic led to shutdowns all over the world, several countries stopped their air carriers from flying. This led to valuations of all airlines falling by half as of today (year to date). United Airlines, which was trading at $90 a share is currently trading at $39 a share. Similarly, Luftahansa AG is trading at 9 euros a share, the same as it was before the coronavirus pandemic hit. Among the listed airlines, Indigo’s market valuation is currently Rs 50,548 crore, while the much smaller Spicejet is valued at Rs 3,090 crore as on Friday.
“Apart from taking into account the financials, we will also take the global and Indian peers into account while making a valuation for Air India,” the potential bidder said.
The government has set the deadline of October 30 for submission of expression of interest.
