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
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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?
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