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  1. Bumpy ride: Government reluctant to allow Air India free flight

Bumpy ride: Government reluctant to allow Air India free flight

The government has said it intends to retain a 24% stake in Air India (AI) after the divestment despite suggestions from prospective buyers it should exit the carrier completely.

By: | Mumbai | Published: May 2, 2018 3:48 AM
air india, air india privatisation, air india disinvestment, free flight, flight Prospective buyers have also sought many more details on the financial liabilities of the carrier, especially relating to the large quantum of debt. (Reuters)

The government has said it intends to retain a 24% stake in Air India (AI) after the divestment despite suggestions from prospective buyers it should exit the carrier completely. This stake would be owned directly by it. Interested parties for the bankrupt airline are understandably anxious that the government, although a minority shareholder, would interfere in its operations. Importantly, the government has also clarified no more than 49% of the 76% up for grabs can be held directly or indirectly by a foreign entity. Refuting that a three-year time frame had been specified for an initial public offering, it said additional details would be provided in the request for proposals (RFP).

Prospective buyers have also sought many more details on the financial liabilities of the carrier, especially relating to the large quantum of debt. Moreover, they are concerned they may not be in a position to extract synergies from the acquisition of Air India if the business is to be run at “arm’s length” and as a going concern as the government insists it should be.

The ministry said in a corrigendum on Tuesday: “Provided that confirmed selected bidder shall be allowed to realize operational synergies to applicable laws with further details being defined in the RFP.” This concern had been raised by the Tata Group, which questioned why a business group with an existing airline needed to run AI at arm’s length and not derive operational synergies. In a somewhat curious response, the government has said arm’s length being “a widely used concept”, bidders are advised to take their own legal view on this.

A reading of the 160 queries received by the government by interested parties following the release of the preliminary information memorandum suggests employee benefits are also of some concern. The government said that the conditions to safeguard employees’ interests will be included in the FRP.

Those interested have asked for a description of the provident fund/ pension contributions made by AI on behalf of its employees. “Details on retirement benefits will be provided at RFP stage,” is the government response. However, it has clarified that there are no pension costs/liability on AI as pension payments are under defined contribution by employees.

Prospective buyers have also expressed concerns that the employees may block the sale of AI to an interested bidder. “Employee concerns are being suitably addressed,”the government has said. Importantly the government has clarified that it will be released of all financial guarantees and support extended on behalf on AI of the total debt of Rs 33,392 crore the total debt and liability after deducting Rs 8,816 crore of net current liabilities remaining Rs 24,576 crore will remain with the airline and its subsidiary Air India Express.

The government allowed changes in the consortium formation and provided the fresh bid is submitted after the expression of interest (EOI) deadline of May 31 withdrawing the previous one and allowed changes in partners provided it applies for an approval transaction adviser, in this case EY, no later than 15 days before the RFP. The deadline for submission of EOI and intimation of qualified bidders has been extended to May 31 and June 15, respectively.

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