Ace investor Rakesh Jhunjhunwala’s joke about him being interested in acquiring Air India seems to be playing out well with the global private equity giants KKR (Kohlberg Kravis Roberts) and Warburg Pincus keen on buying an equity stake in the beleaguered national carrier which is about to be put on sale by the government. Only, they seem to be serious in their intent in having a share of the pie.
The two buyout firms KKR and Warburg Pincus have separately sought details of the proposed privatisation process of Air India, Livemint reported on Monday citing unidentified sources. “Air India’s businesses make attractive investment opportunity for the PE funds, however, the discussions are currently at a very early stage and will expectedly gain momentum once there is clarity on the divestment process,” the report quoted a source as saying.
The development comes after low-cost carrier Indigo and Tata group separately showed interest in buying out the troubled national airline Air India, which had become sort of a mascot for brand India overseas but also turned into a taxpayer money guzzling machine ridden with inefficiencies and mismanagement.
IndiGo was the first company to make a formal unsolicited approach to the government for buying a stake in the state-run Air India, making its move hours after the Union Cabinet gave an in-principle approval for disinvestment of debt-laden carrier. Previously, it was reported that the Tata Group is considering buying the giant state-run carrier from the government in partnership with Singapore Airlines. News reports had also said that the government, which is also reportedly keen on retaining Air India as a domestic carrier, is happy with the Tata Group’s interest, and is even likely to mandate that a controlling stake be bought by an Indian entity.
However, the debt of the airline remains a potential block in the privatisation bid. Air India, under intense competition from leaner, more efficient and often-cheaper private airlines, is reeling under a debt of over Rs 52,000 crore, with about Rs 28,000 crore in working capital debt, and about Rs 4,000 crore in interest burden alone. It has not turned profit in 10 years, since at least the year 2007.
Air India has guzzled up taxpayer money over and over again but to no effect. The carrier has received bailout packages worth about Rs 24,000 crore out of a total Rs 30,000 crore approved, but has failed to revive its fortunes amid private airlines continuously gaining market share. Its market share in domestic market has fallen to 14% in 10 years from 35% a decade ago, placing it third in the national ranking, behind Indigo, which commands about 40% of Indian skies, and Jet Airways, which has about 16% of the share. Air India also flies overseas, and commands 17% of the international traffic from and into India.
Both the PE giants KKR and Warburg Pincus are the only foreign players so far who are reportedly keen on taking up a stake in Air India.