The revised bidding document for the airline, which is expected by this month-end, could either allow potential bidders to value Air India purely on its assets or substantially reduce the ₹23,286 crore debt currently required to be absorbed by a successful bidder.

“At present, the debt offered is nearly equal to the value of Air India’s assets. So the bidding is supposed to take place over and above ₹23,286 crore. But now the transaction adviser EY India has said that because of covid-19, the assets, especially the aircraft which are sitting idle, have lost their value and have become a burden on the company. So, EY India has asked not to assign any value to the assets, allowing the bidding process to discover its true value," a government official said on condition of anonymity.

The official said that a final decision could also steer towards reducing the existing debt burden for the potential bidders.

“A lot of discussion within the government has already taken place on it, but we are unable to come to a final decision yet. The proposal has to be first cleared by the core group on disinvestment headed by the cabinet secretary and finally by the Air India specific alternative mechanism (AISAM) headed by home minister Amit Shah. We expect a final decision before month-end," he added.

An EY India official declined to comment and instead suggested waiting for a final decision by the government.

“It is difficult to say if a restructuring of the debt burden will be more attractive to the interested bidders. Ultimately, the devil will lie in the details," said Dipti Lavya Swain, a cross-border corporate and mergers and acquisitions lawyer and partner at HSA Advocates.

This is the second attempt by the government to sell Air India. The first attempt at selling a stake in the carrier in March 2018 failed as investors were uncomfortable with the government retaining a 24% stake in the airline as well as the requirement to stay invested for at least three years. Also, the acquirer was required to absorb ₹49,000 crore in debt.

In January this year, in its second attempt to sell the carrier, the government sought bids for divesting its entire 100% equity in the airline, including Air India’s 100% stake in no-frill subsidiary Air India Express Ltd and a 50% stake in Air India SATS Airport Services Pvt. Ltd. It also substantially reduced the debt burden needed to be borne by the successful bidder out of the total debt of ₹60,074 crore.

However, the government has been extending the deadline for submitting bids for Air India several times, especially due to the unexpected unfolding of the coronavirus pandemic. The current deadline ends on 30 October. Civil aviation minister Hardeep Singh Puri has often said in the recent past that Air India has to be privatized or shut down because of its high debt burden.

The government has set a disinvestment target of ₹2.1 trillion for FY21, including the privatization of Air India and BPCL. So far, it has been able to garner ₹5,696 crore through offers for sale of Bharat Dynamics and Hindustan Aeronautics Ltd. It is, however, yet to carry out any strategic disinvestment so far this fiscal year.

The government had missed the disinvestment target of ₹65,000 crore for FY20 by ₹14,701 crore.