Air India has selected DSP Merrill Lynch Ltd, one of the leading investment banking and securities companies in India, to be their advisor for the proposed initial public offer.
This followed a bidding process wherein 15 merchant bankers applied. Of these six were short-listed for presentation and a final selection was made based on the presentations.
The terms of reference for the advisor will include preparing a broad road map for Air India's proposed IPO for submission to the ministry of civil aviation for its approval, including advising on capital restructuring and various options regarding the type of issue, timing, size of the offer, valuation methodologies, ESOPS and other corporate governance requirements.
Air India presently has a share capital of Rs 153.84 crore (Rs 1.538 billion) fully subscribed by the central government. Its authorized capital is Rs 500 crore (Rs 5 billion).
Air India has on its anvil a huge expansion plan involving acquisition of 50 aircraft at an approximate cost of $7.1 billion. In addition, Air India also plans to induct 18 B737-800 aircraft at a cost of about $1.2 billion, for its subsidiary Air India Charters Limited under whose banner Air India Express is being run as a low cost airline.
The acquisition proposals are presently before the Public Investment Board for approval.
Based on the turnover, Air India was ranked 48th amongst the top 150 global airlines of the world by a leading aviation magazine in the United Kingdom, Air India moved higher by two notches as compared to its rating in 2003.
In the Asia-Pacific region, Air India has been ranked 16. As of date Air India has 56 on-line and 33 off-line stations in its network.
Air India presently has a turnover of $1.77 billion with its budgeted turnover for 2005-06 expected to reach $2 billion. Air India has 4 subsidiaries: Hotel Corporation of India Ltd., Air India Charters Ltd., Air India Air Transport Services Ltd. and Air India Engineering Services Ltd. Their turnover has not been reckoned for this purpose.
On a consolidated basis, Air India's turnover is likely to exceed $2 billion in the year 2005-06.
Air India has also recently signed a 10-year wage agreement with two of its unions representing a majority of the employees. The earlier agreement had expired on December 31, 1996 and the new agreement would be valid up to December 31, 2006.
The agreement provides for increase in basic wages and allowances in lieu of union agreeing to better work practices and outsourcing of activities to subsidiary companies and others aimed at cost reduction. This will be followed by agreements with remaining unions / association so that a comprehensive wage agreement is in place valid up to December 31, 2006.
Air India's EBIDTAR (earnings before interest, depreciation, tax, amortization and rentals) has shown a steady growth over the years and has reached Rs 1,140 crore (Rs 11.40 billion) in the year 2004-05. It is expected to grow further in 2005-06. The budget of 2005-06 projects a 20% increase in ATKMs (Capacity provided), 24.3% increase in RTKMs (Capacity utilized) and a 72% passenger load factor. The flying hours are expected to increase by 17%.
Presently, Air India is pursuing a leasing plan as an interim strategy pending the acquisition of aircraft. Its present fleet strength of 42 is likely to increase to 50 by the winter of 2006-07.
Air India has also plans of introducing non-stop services to USA by acquiring ultra long range aircraft. Air India has also issued a letter of intent to augment its cargo capacity from Kerala to the Gulf and from India to Germany in pursuance of a cargo business plan which aims at achieving substantial increase in growth in the cargo capacity in the years to come.
Air India has also purchased slots with EADS for the conversion of two of its A310 as freighter aircraft in August and September 2007.
In line with its acquisition plan, Air India intends to strengthen its equity base and net-worth by infusion of funds raised through the IPO and thereby improve its gearing ratio which is presently 2.3 :1.
Air India recently declared a dividend of 10% based on improvement in its performance for the year 2004-05, despite an unprecedented increase in fuel prices which dented its profits by nearly 650 crore (Rs 6.50 billion).
For Air India, this was the fourth consecutive year of profits. Air India, formed under the Air Corporations Act in 1953 and later converted into a Company in the year 1992, has been profitable in most years of its operation.