EY, Rothschild and Cyril Amarchand advise on Air India divestment

07 November 2017 Consultancy.in

Having grappled with enormous debt for a decade now, the Government of India (GOI) made the decision earlier this year to begin the divestment of the public sector airline company Air India. In the race to provide legal and transaction advice on what promises to be a substantial financial project, Cyril Amarchand, EY, and Rothschild appear to have emerged as frontrunners.

National carrier Air India has been in considerable financial trouble for a stretch of time now. In 2007, GOI made the decision to merge Indian Airlines, the domestic operation, with the international operation of Air India. Since then, the company has failed to register a profit in a single year, having accumulated a crippling debt of Rs. 52,000 crore. Of this, Rs. 22,000 stems from aircraft acquisition loans, while the rest is the result of the daily operations costs for the airline. Moreover, the company’s market share has also been in rapid decline, falling from 19.4% in 2013 to 13.3% in 2017.

The debt has significantly affected the airline’s overall operations, making it a massive burden on GOI. Air India Chairman and Managing Director, Ashwani Lohani said that the “mountain of debt appears insurmountable and is the root of all problems.” Earlier this year, the Finance Minister of India also expressed concerns that repaying the substantial debt would be a waste of valuable public funds that could be otherwise diverted for social welfare schemes.

As a result, NITI Aayog, the planning body for GOI, came up with a report earlier this year that called for the sale of the entire company. The recommendation was then reviewed by two separate committees, one of which was chaired by Prime Minister Modi, and the decision was finally made to go through with a divestment.

The search then began for firms that would assist with the legal and financial aspects of the transaction. The Department of Investment and Public Asset Management invited a number of corporate finance, M&A and law firms for selection to assist with the strategic offload, and received bids from seven consulting firms and seven legal firms. Legal firms who expressed interest included Hammurabi and Solomon Partners, Crawford Baley, & Co., ALMT Legal and Trilegal.

Firms selected

Of the interested firms, three have been selected to oversee the project. While Cyril Amarchand Mangaldas will act as legal advisor to the airline, Big Four accounting and advisory firm EY, and investment banking firm Rothschild have been selected as transaction advisors.

The monumental transaction involves the transfer of 142 operating aircraft, consisting of 65 A-320s, 15 B-777s 24 B-787s, and 23 B( 737-800) aircraft, as well as a number of real estate assets. Despite the large debt amount, the decision to disinvest has generated considerable interest amongst local firms, most notably from India’s largest budget airline Indigo, as well as from steel and consultancy giants Tata.

Consulting Air India

This is not the first time that Air India has turned to consultants. Previously they hired Strategy& to support with corporate strategy, while Deloitte supported the carrier with implementation of a year-long operations overhaul. Accenture has also helped Air India on several occasions with upgrading its technology footprint and streamlining its business-IT alignment.