Air India's Real Estate Strategy to Combat Financial Challenges
Air India is embarking on a comprehensive plan to monetize its real estate holdings to navigate its current financial difficulties. The national carrier has enlisted DTZ International Property Advisers Private Limited, a prominent real estate consultant based in Delhi, to spearhead this initiative.
Monetization Options
Air India is exploring a multifaceted approach to real estate monetization. This encompasses several strategic alternatives, including the sale, lease, and redevelopment of its properties.
By selling or leasing assets, Air India seeks to fulfill the stipulations set by the government, which previously required Rs. 30,000 crore as security. This amount comprised an upfront equity infusion of Rs. 6,750 crore and guaranteed equity support of Rs. 23,481 crore extending until the fiscal year 2020-21.
Financial Targets
The company's objective is to generate at least Rs. 500 crore in the current fiscal year and an additional Rs. 5,000 crore over the subsequent decade. Air India anticipates achieving these financial targets through the strategic monetization of select real estate assets.
Properties Targeted for Monetization
Air India possesses a substantial real estate portfolio encompassing approximately 105 properties, with three of these situated internationally.
Among the properties slated for monetization are Air India’s office and reservations building at the New Delhi airport, as well as the airline’s staff housing located in Vasant Vihar. In addition to the properties located in New Delhi , staff housing buildings in Mumbai and Chennai are also earmarked for monetization. Furthermore, the airline’s overseas properties situated in London and Tokyo are also being considered for inclusion in this initiative.
Real Estate Consultants
To effectively manage this complex undertaking, the airline has shortlisted four prominent real estate consulting firms: Cushman and Wakefield India, DTZ International Property Advisors, Jones Lang LaSalle, and Colliers International.
Air India's Debt and Losses
Air India's debt burden is projected to reach approximately Rs. 43,777 crore by December 31. The company has reportedly incurred losses amounting to Rs. 27,000 crore over the past five years.
High-Value Properties and Potential Revenue
A 2011 report by Jones Lang LaSalle India highlighted the airline’s leasehold rights on several strategically located real estate properties, including a noteworthy building situated along Marine Drive in a particularly commercially advantageous area.
The report specifically mentioned the G + 22 storied Nariman Point building, which has nearly 220,000 sq. ft. available for lease. Leasing this building could generate up to Rs. 80 crore, and if sold at its capital value, could yield approximately Rs. 800 crore.
Debt Repayment through NCDs
Through the placement of Non-Convertible Debentures (NCDs) to the Life Insurance Corporation of India (LIC) for Rs. 3,000 crore and the Employees’ Provident Fund Organisation (EPFO) for Rs. 4,400 crore, the airlines amassed Rs. 7,400 crore. This funding was primarily utilized to partially repay loans acquired from approximately 19 banks, which included short-term working capital loans totaling approximately Rs. 7,391.67 crore.
The NCDs, with a 19-year tenure, were issued at the beginning of November. Air India is obligated to repay the principal amount of the NCDs in five installments and pay interest biannually.