Air India Sale : Who will Buy Air India | Air India Sale News | Latest Share Market News| Groww

Air India Sale : Who will Buy Air India | Air India Sale News | Latest Share Market News| Groww

January 29, 2020 28 By Luis Garrison


Air India, whose history starts from 1932 Which means before India became independent And at one time it was one of India’s most famous airlines But in recent days something happened That the company went in a lot of loss Because of which the government tried to sell the company But at that time no one bid on the company But the government again got an offer That it wants to sell a 100% stake of the company Now you must want to know what the reasons were behind this And in what ways can its stakes be sold And what are the potential buyers Who are interested in buying this company I, Jagdeep Singh, welcome you to the Groww channel Let us start today’s video In which we will tell you about Air India’s history About its business model About some of its financial data And we will tell you which companies can bid on this in the coming days Let us start off with Air India’s history And let us find out how Air India was started You must be thinking that Air India is a government company which was started by the government But you will be shocked to hear that That Air India was first started in 1932 by JRD Tata And at that time its name was Tata Airlines After that it continued to operate with the name Tata airlines After that the government brought about an act in 1953 Air corporations act Because of which they bought a majority stake from airline companies And they nationalised airline companies After that the name company was changed to become Air India After being nationalised in 1953, Air India started it domestic unit which was called Indian Airlines That used to operate only in the domestic range And Air India mainly catered to the international markets So these two units operated separately But in 2007, both of them were merged And both were made into one company After which problems started arising here After the merger when these companies reported their loss, it was found that they were very big loss making companies If I tell you a very interesting data point So Air India in the past decade Gave the government a 70,000 crore rupees loss So you will be shocked the find out how much the operational inefficiency was Because of which the government thought that this organisation Should be privatised so that operational efficiency can be done After history let us talk about the sale of this privatisation For a long time, you must have heard that the government is trying to privatise Air India So was this started now, or did it happen a few years ago If I tell you something very astonishing, then the government for the first time, Tried in 2001 To privatise Air India So from then until now that topic is going on that Air India will be privatised The deal was changed again and again but this time the deal that the government got It is considered that this is the most lucrative deal And the government has a lot of hope that a lot of buyers will come and bid on this company So now you must be thinking what the big problem here is that the government is unable to disinvest and unable to sell its stakes And the biggest reason behind this is the debt level on Air India If I give you a very simple example, that there is a company, Company A And whenever someone comes to buy this company and the company has a lot of debt on themselves So the debt has to repaid by that company who bought it So if I talk about the debt level on Air India so in 2018, the debt level on Air India was around 80,000 crores And at that time the deal that the government brought about, stated That they want to sell 76% stake of Air India And whichever company buys that stake They have to repay a debt of 49,000 crores Which they have to take that much debt in their books And in the coming time they have to pay that debt to the borrowers So keeping that in mind, no company came forward to bid on that company And even at that time the government was unable to disinvest and sell the stakes This was about 2018 when the government said that they want to sell 76% stake But if I talk about now, the news that has come up in the market domain In that news the government has said that they want to sell 100% stakes of the company Of Air India, and they have said whoever buys this company The debt burden that they have to take on themselves will only be around 23,000 crores Now the question comes that if I talk about the overall debt on Air India, then that is around 63,000 crores But the government said here That whoever buy the 100% stake of the company On them, the debt burden will only be of 23,000 crores But now the question comes that the remaining debt, where does that go? Who will repay that debt? As you can see on my screen, if I talk about Air India ltd Under that, there 6 different companies So when the government said that they want to sell a 100% stake In that mainly two companies will be included First, Air India Express ltd And the second is Air India SATS, Airport Services Private ltd In which the government has 50% shares So this company will become a different company where the government will sell 100% stake And from that 23,000 crores debt will go If I talk about the rest of the four companies Like Air India Engineering services Air India Transport services Air India Allied services Hotel Corporation of India ltd in which the government has a share of 80.3% Merging these four, a separate company will be formed On which the rest of the debt burden will go And the separate company that is going to be made will be called Air India Asset holding company On which the major debt burden will go and it will be owned by the government After this deal let us talk about some very important data points How does Air India as a company perform every year financially First I will tell you about its operating profit About its expenses and how much loss it books daily If I talk about the financial year ’19, the the loss booked by Air India was 8,550 crores If I compare it to the last financial year Then in the last financial year its loss was 5,000 crores Which means every year their loss is increasing If I talk about Air India’s operating revenue, then Air India’s operating revenue is around 25,500 crores And their operating expense is around 30,000 crores Which means that this company books losses If I tell you a very interesting data figure Then Air India daily books a loss of 20-25 crores So in what I spoke until now, I told you about Air India’s history I told you about their business And even about their financial data But the biggest question that comes up now is What are those companies that will be interested in buying it And what are the advantages for any company buying it Which means what are the opportunities in Air India’s business Which makes it unique, and if some company is buying it, what advantages does it have? So if I talk about some names that might be interested in buying this company, then that can be Tata group Hinduja group, Indigo, SpiceJet But all this news is in the public domain, how true they are Will be found out in the coming days when any company goes and bets on this company Now you must be thinking that all the names I told you now, were Indian companies So can there be a chance here that a foreign company comes and buys this company So there can be a small legal complication here That in India there is a limit in FDI, if any company wants to buy into an airlines company They cannot buy more than 49% So if some foreign company wants to buy, they can go into partnership with an Indian company and bet on this company Now I will talk about the benefits Why would any company want to buy into Air India What are the unique characteristics in its business that makes it different And its a good value proposition for any company to buy into this So if I talk about value proposition so here there are four main pointers that make a good value proposition for this company for other companies to bid on this Firstly, this company has 121 operational aircrafts Which is of Airbus and Boeing So if any company wants to expand its operations, this is a very good opportunity for them because they already get operational aircrafts Where they can come and easily expand their operations If I talk about the second pointer that makes this a very good value prop, it is that If I talk about the airlines industry in general It is very important for any airlines industry in any company They should get a proper landing and parking spots in the main airports If I explain this to you with a very simple example Bombay airport is such an airport which is extremely busy If I talk about the peak time there, like for example 8pm, that is the peak time for landing That landing spot is assigned to very less companies Because there the airlines traffic can be a lot Old companies like Jet Airways and Air India, they had a very prime Landing spot Which new companies now do not get So if any new company comes and tries to buy this and bid on it They get a direct benefit of landing and parking spots So if I give you a figure then Air India has 4400 landing and parking spots in the domestic airlines industry Where they can go leverage themselves And the company that buys this can leverage this opportunity Can think of expanding in the prime hours The third important parameter is 1800 international parking and landing spots As you know that the international aviation industry is very overcrowded And to get landing spots here is that much more difficult So here as well, in Indian airports, Air India has 1800 international parking and landing slots Which can give a lot of direct benefit to any company If I talk about the last thing That Air India is spread out very well in other countries If I talk about a data figure, they have 400 international landing slots In different airports Which are major airports, where companies nowadays Find it very difficult to find slots This was talk about Air India How it can disinvest itself and what companies can be interested in it Now you must be thinking what effect this can have on you as an investor Consider that you have invested in any company Say you’re invested in company A and you have bought its shares And in the future that company A goes and buys this company Its debt directly goes on that company So if you’re invested in any company and they are planning on betting on this company You should see the implications of this very carefully Because it doesn’t just impact in the case of financial reports But even the company’s expansion plans depend a lot on this And whenever the value prop aligns with this then they think that this is a very good business opportunity In that case they think to buy that company So if you’re invested in any company and they are thinking of betting in this company Or they bid on it So you should see in detail what the company’s long term plan is And only after that should you make your investment decision So friends, if you haven’t yet subscribed to this channel, then please subscribe Because we bring about 3-4 videos every week on this channel about financial knowledge Which can help you a lot in being an intelligent and a good investor So I will end this video with a question for you Which company do you think will bid on Air India? And what company do you think will buy this company and what are the reasons behind that? Apart from this, if you liked this video Press the like button, comment and answer our question And please subscribe to our channel And yes, we absolutely do not recommend the buying or selling of any shares in our videos Every video we make is purely for educational purposes So that it can be a case study for you And it can help a lot for you to do your research Happy investing!