Should the terms for the sale of a majority stake in Air India not enthuse prospective buyers, the government may choose to sweeten the deal by assuming additional liabilities of close to Rs 3,500 crore, sources told FE. This is proposed to be done by assuming employee liabilities of `1,298 crore and contingent liabilities of Rs 2,200 crore, they said.
According to the preliminary information memorandum (PIM), the buyer must acquire liabilities and debt to the tune of Rs 33,392 crore; the total borrowings of the national carrier were approximately Rs 51,400 crore as in March 2017.
Analysts have pointed out the debt with Air India could potentially be higher on a few counts, including 11 aircraft added post 2017 and an increase in the actuarial value of the accrued employee liability.
Of the Rs 33,392 crore, net current liabilities account for Rs 8,816 crore. Interest-bearing loans account for about Rs 17,100 crore while Rs 7,500 crore comprises financial aircraft leases, which can be terminated if needed. There is another contingent liability of `900 crore, which sources said are not likely to materialise.
By sweetening the deal, the government hopes to be able to convince prospective buyers to take over the loss-making carrier, which is huge drain on the exchequer. As of now, local carriers such as Jet Airways and IndiGo have indicated they will not bid for the 76% controlling stake in the national carrier. A Reuters report on Wednesday said the Tata Group, which has alliances with two carriers — Malaysia’s AirAsia and Singapore Airlines — has expressed its reservations on bidding at the current terms. Interested parties have been given two documents by the government — the PIM and a global invitation for EoI. Since the government is keen to ensure the divestment of Air India goes through, it might make the terms less onerous than they are, sources said. Industry experts point out that it’s not the price alone that will influence buyers’ decisions.
While the carrier’s routes are its strength, the employee costs are relatively high. According to Kotak Institutional Equities, Air india’s per unit employee costs were 1.3 times and other operating costs were 2.4 times that of IndiGo in FY2017. “In the event major employee cost and other costs rationalizations is not permitted, we believe bidding interest may be limited,” the brokerage wrote recently. Air India had 11,214 permanent employees as on December 1, 2017 along with 2,913 contract employees and 2,155 casual employees; approximately 38% of the permanent employees will be retiring over the next few years.
By Manisha Singhal