In a move that could help loss-making Air India (AI) improve cash flows, the state-owned airline is close to finalising lease agreements for 12 floors at the Air India building at Mumbai’s tony Nariman Point to the government’s income-tax and service tax departments. If the latest phase of asset monetisation is concluded, most of the sea-facing prime property would have been leased out, a top AI official told FE.
“We expect this deal to be concluded soon as lease rentals in south Mumbai have softened and are now closer to what the government departments expect. However, we will not offer any discounts below the market rate. The IT department is looking for eight floors and the service tax department wants four,” the airline official based out of the New Delhi head office said.
South Mumbai’s AI building, which till early 2013 used to house the corporate headquarters for the flag carrier, currently has State Bank of India and Tata Consultancy Services as tenants with five of the 23 floors between them. AI has retained the top two floors, while a part of the ground floor has been leased by the newly formed Bharatiya Mahila Bank.
Though AI has been facing major difficulties in monetising land assets as required under its 2012 turnaround plan (TAP), what helps in this case is that lease rentals have dropped by as much as 37% since 2012-13. From Rs 350 per sq feet per month, rents in the last six months for Nariman Point Grade A buildings, are down to Rs 220-225 per square feet per month, a report released in October 2014 by real estate consultant CBRE South Asia Private said.
During 2012-13, the AI board had estimated that it can earn about Rs 36-40 crore annually by letting out 15 floors in this building where each floor is about 10,000 sq ft divided into two – sea view and non-sea view.
AI officials said that the Directorate General of Shipping (DGS) had also shown initial interest in leasing floors at the AI building in 2012-13. However, this didn’t go ahead as the Air India board struck to its asking price of Rs 350 per sq feet, which DGS was unwilling to pay. While the DGS had offered between Rs 280 and Rs 290 per sq ft per month as rental, the income-tax and service tax departments offered to pay rents of Rs 300 a sqft a month.
At a time when outstanding debt is over Rs 40,000 crore and accumulated losses stand at about Rs 30,000 crore, land monetisation can give a major fillip to AI’s TAP. As per the original targets, the airline is required to rent, sell or re-develop its properties across the country to gather revenues of Rs 5,000 crore in the next 10 years. This includes 106 properties across India, as well three in Tokyo and London. AI also has land parcels in Hong Kong, Nairobi, Mauritius, Mumbai, New Delhi, Gurgaon, Chennai, Kolkata and Coimbatore, most of which are yet to be sold or leased.
Ravindra Dholakia, independent member on AI’s board, told FE on the sidelines of an event last month that the airline is unable to sell its properties because in several cases it hasn’t been able to establish ownership and, as a result, could only lease these properties and not sell them.
“We, being a public sector unit, can’t take commercial decisions by ourselves and require at least three levels of approvals from different levels, including the government. The best we can do is to hook on to some other public sector enterprises – that are making profit – and are in need for such kind of premises. We have no other options,” Dholakia said.
In the case of the airline’s iconic property at Nariman Point, which served as its headquarters until recently, Dholakia said that by the time the airline decided to sell the property, the real estate price of the area had already taken a beating as companies started moving to Bandra-Kurla Complex (BKC) from the financial hub of Nariman Point.
Incidentally, last week AI signed an MoU with National Buildings Construction Corporation (NBCC) under which each land asset will be individually evaluated for a particular mode of monetisation process.