Air India for Sale

• The Air India sale process is heating up. According to newly-published guidelines, bidders will be able to buy 100% of the airline, incurring just one-third of its mammoth $8b debt burden. When India’s government last tried to sell just 76% of its national airline, buyers were asked to take two-thirds of its debt, which is one reason nobody was ultimately interested. Even one-third, though, is a lot of money when you’re talking about $8b in debt (about $3.2b).
  
  In any case, interested parties have until March 17 to make a bid. They’d in fact get not just Air India but also the Kochi-based LCC Air India Express and a 50% stake in the carrier’s ground handling joint venture with Singapore’s SATS. Not included: a separate ground and cargo handling unit, Air India’s maintenance unit, a subsidiary that owns two hotels, or Alliance Air, which operates regional routes. Can foreigners bid? Yes, but they can only own a maximum 49% of Air India — control must stay with Indian citizens. Air India, no surprise, is a big money loser.
  
  Its latest published financial statements show a negative 11% operating margin for the 12 months to March 2019. But Air India Express, flying 25 B737-800s, earned a positive 13% operating margin while growing revenues 16%. Even Air India itself has a lot to offer, including valuable slots and traffic rights, plus a modern fleet of about 120 planes that includes B787s. There’s a lot of low-hanging fruit to quickly pick, including the utilization of 18 planes currently ground, five of them widebodies.
  
  There’s a lot to gain, furthermore, from improving service, reliability, marketing, revenue management, its 3m-member loyalty plan, and so on. Note also that Air India did in fact earn operating profits in 2015 and 2016. And for all of its massive net losses in recent years, there’s the upside of future tax credits associated with those losses.
  
  One more relevant fact: About 36% of the airlines full-time employees will be retiring in the next five years, presenting opportunities to downsize staff without layoffs. Before reaching for your checkbook, though, don’t forget about that debt, and don’t think turning Air India into an efficient airline will come easy.

South African’s Tale of Woe

• South African Airways is a much different story than Air India. Its appeal to outside investors is hard to discern, lacking as it does a large and fast-growing home economy. It also lacks geographically central markets useful for hub connectivity. That’s not stopping the airline’s bankruptcy administrators (business rescue in local parlance) from searching for a “strategic equity partner.”
  
  For now, it’s avoided a crisis by receiving delayed emergency funds promised by its government, which is dealing with even more severe financial problems at its state-owned utility company Eskom. South Africa’s economy is not healthy right now. Business confidence, the IMF notes, is at a two-decade low. Prices for its commodity exports are low. And political corruption is a clear problem. Last week, a former South African Airways acting CEO testified that in 2015, the airline was on the verge of seizing a golden opportunity: An enhanced commercial alliance with Emirates that would have provided SAA with a $100m revenue guarantee for its Johannesburg-Dubai route.
  
  But at the last minute, the executive said, SAA’s then-chairman abruptly and inexplicitly declined to authorize the deal. Malfeasance? That’s for the South African courts to decide. A bad decision of epic proportions? Yes, to the thousandth power.   

Will Interjet Make It?

• Will Interjet survive its current troubles? One lifeline could come in the form of a merger with VivaAerobus, an idea reportedly gaining traction. Interjet needs more capital to pay its liabilities. And Viva would presumably relish the idea of removing one of Mexico’s four major airlines. It would have to structure the deal, however, in a way that didn’t dilute its own financial strength and commercial strategy.