Valuation of Air India set to take a knock amid coronavirus outbreak

The valuation of Air India may decline significantly due to the coronavirus pandemic, which is expected to hit the revenues and profits of all airlines in the coming months, according to bidders. Potential bidders for Air India said they were going back to the drawing-board and would submit a bid after taking into account the peer valuations in the stock markets in India and overseas.

The impact of the pandemic is showing in the share prices of top airlines worldwide, with the United Airlines and Lufthansa share prices falling by 58 per cent and 36 per cent, respectively, since January this year. “There are several airlines listed in India as well as overseas and that’s a good indicator of Air India’s valuation,” said a bidder, asking not to be named. 

 

The aviation industry is expected to make a loss of $67 billion in 2020 and several airlines are expected to file for bankruptcy in the coming months.

Citing an example, the bidder said both United Airlines Holdings and Deutsche Lufthansa AG were profit-making, with United flying to 369 destinations and having a fleet of more than 1,250 aircraft.

Lufthansa is flying to 220 destinations and has 400-plus aircraft. The share price of Delta Air Lines is down from $58 on January 1 this year to $38.36 on Friday closing. The US-based airline has a fleet of 909 aircraft and flies to 325 destinations.

Air India, a loss-making airline, has 103 destinations and, along with Air India Express, around 146 aircraft. The airline has not made money since the merger of Air India and Indian Airlines in 2007.

Apart from Air India, the government is also looking to sell Air India subsidiary Air India Express and 50 per cent in Air India SATS Airport Services.

Apart from the Hindujas, the Adani group, and US-based fund Interups, the Tata group is expected to make a bid. The government has extended the last date for submitting expressions of interest to April 30 after some entities cited the visa ban till April 15 by the Indian government. This, according to them, is preventing their travel to India for valuation.  Another prospective bidder said it might opt out of the process because of the crisis.

“We will take a final call in the last week of April on submitting the EoI,” it said.

The decline in Air India’s valuation is bad news for the government, which is trying its best to sell the airline after it had to pump Rs 30,000 crore of taxpayers’ money into the airline since 2012.

In order to attract bids, the government has transferred Rs 29,500 crore of Air India’s debt to a special purpose vehicle – Air India Asset Holding, with real estate assets. With this, Air India is left with Rs 23,000 crore of debt.  The government is selling its 100 per cent equity in the airline, unlike its offer of 76 per cent in the previous round of sale in May last year.