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Air India arm’s privatisation hits a bump

High royalties quoted by bidders for ground handling unit a concern; deadline for bids extended twice

The government’s effort to privatise Air India Air Transport Services Ltd., Air India’s ground handling arm, has run into a stone wall, with potential bidders raising concerns over the Airport Authority of India’s plan to award ground-handling work at 76 of its airports to vendors. This, according to them, could impact the value of the entity up for sale.

The deadline for bids for 98% stake sale for AIATSL has been extended twice since February 12, when the tender was floated. The original deadline for submission of bids was on February 26, which was first extended to May 26, was pushed further to June 16.

“We have sought a response from the Airport Authority of India (AAI) regarding its tender process for ground handling after which we will be in a position to address concerns raised by potential bidders,” said a senior official of the Ministry of Civil Aviation, on condition of anonymity.

Ground handling agencies such as Bird Group, Celebi Aviation Holding, and Bhadra said that high royalties of up to 226% offered by bidders short-listed by AAI would have to be matched by the new buyer of AIATSL to provide services, which will make the entity unviable.

“The outcome of AAI’s tender will affect the profitability of AIATSL because of high royalties quoted by short-listed bidders,” said Celebi Aviation Holding CEO Murali Ramachandran.

He added that the annual profit of nearly ₹120 crore earned by AIATSL would be inadequate to match the royalties by competitors.

AIATSL is present at 76 airports in the country and serves 46 airlines, including Air India and its subsidiary airlines.

It has a market share of 48% primarily due to assured business from Air India, as well as rights to operate at State-owned airports.

Other concerns

Uncertainty over Air India’s future and whether the new buyer of AIATSL would have assured business from the airline and its subsidiaries as well as grand-father rights at airports enjoyed by it so far, are also among the concerns raised by potential bidders.

The delay in privatising AIATSL is a setback for the government which hopes to use the proceeds from the stake sale of different subsidiaries of Air India to partially pay off its debt of ₹55,000 crore.

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