Two canceled missions, three different ministers, several rule changes and two decades later, Indian taxpayers no longer have to pay 20 billion rupees a day to keep loss-making Air India flying.
DIPAM secretary Tuhin Kanta Pandey said Tata is not getting a cash cow, but an airline that is bleeding where money needs to be pumped in to renovate outdated aircraft and strangle dust while not touching and just being an employee for a year may be able to change staff size after a VRS has been paid.
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“It won’t be a very easy task there. The only benefit is that they (new Air India owner) are paying what they think they can handle. They are not taking on the excessive debt that they have accumulated to To finance years of losses. We carry on. ” it as a constant concern … This process has saved a huge amount of taxpayers money in the future, “Pandey told PTI.
Earlier this month, the government accepted an offer from Talace Pvt Ltd, a unit of the holding company of Salt-to-Software group Tata Group, to pay Rs 2,700 billion in cash and to take on Rs 15,300 billion of the airline’s debt.
As of August 31, Air India had a total debt of 61,562 billion rupees. About 75 percent of that debt, or Rs 46,262 billion, will be transferred to a special purpose vehicle AIAHL before the loss-making airline is handed over to the Tata Group.
Tatas would keep non-core assets such as Air India’s Vasant Vihar Housing Colony, the Air India Building at Nariman Point in Mumbai and the Air India Building in New Delhi.
“We only allowed (Tata group) to use it for two years, but within two years we need to develop a monetization plan for the sale so the money can be used to pay AIAHL debt,” said Pandey.
Of the 141 Air India aircraft Tatas would receive, 42 are leased while the remaining 99 are owned. Tata will also assume the capitalized lease liability under operating leases for Rs 9,185 billion. In addition, some of these 141 aircraft are on the ground due to missing engines and other maintenance work. The aging factor is also that there are many who are not fuel-efficient.
“We want to finish the handover quickly as we pay Rs 20 / day to run the airline. The new owner will have to invest a lot of capital because he will have to make investments to improve aircraft, overhaul and place new orders for obsolete aircraft. Only then can they possibly repent. There are also conditions stipulated that you cannot resize the staff for a year and then give VRS for the second year, “said Pandey.
The government is selling its 100 percent stake in Air India and Air India Express and its 50 percent stake in the groundhandling company AISATS.
However, the government will transfer to Air India Assets Holding Ltd (AIAHL) approximately Rs 16,000 crore of unpaid short-term liabilities beyond short-term and long-term assets such as fuel bills and other outstanding fees that Air India owes to suppliers.
A Letter of Intent (LoI) was served on Tatas on October 11th confirming the government’s willingness to sell its 100 percent stake in the airline. Tatas now has to accept the LoI, according to which the Share Purchase Agreement (SPA) is signed. Conditions precedent for the transactions would have to be met by Tatas before they can actually take over operations.
Typically, the SPA is signed within 14 days of accepting the LOI.
While this is the first privatization since 2003-04, Air India will be the third airline brand in Tatas’ stable – it has a majority stake in AirAsia India and Vistara, a joint venture with Singapore Airlines Ltd.
Air India will have access to a fleet of 117 wide-body and narrow-body aircraft and Air India Express Ltd to a further 24 narrow-body aircraft in addition to controlling 4,400 domestic and 1,800 international landing and parking spaces at domestic airports and 900 slots at overseas airports such as London Heathrow.
Tatas surpassed Rs 15,100 billion bid by a consortium led by SpiceJet promoter Ajay Singh and the minimum price of Rs 12,906 billion set by the government for the sale of its 100 percent stake in the loss-making airline.
Air India was first put on lockdown under the government of Atal Bihari Vajpayee when the newly created Divestment Ministry, led by Arun Shourie, put 40 percent of the government’s stake in the airline up for sale. Foreign airlines, including Lufthansa, Swissair, Air France-Delta, British Airways, Emirates and Singapore Airlines (SIA), expressed interest in buying the airline, but withdrew after the government added a local partner.
Among the two local majors in action, Hindujas implicated in the Bofors fraud were disqualified, while Tata’s partner SIA withdrew, citing “bad climate and opposition to privatization”.
The privatization plan was revived under Treasury Secretary Arun Jaitley in 2017 when the government put 74 percent of the airline up for sale. But the government’s decision to keep 26 percent of the airline and auction rules resulted in no bidder.
After four years of uncertainty about privatization, Air India struggled with declining employee morale and increasing inefficiencies within the organization.
When Modi took over for the second time with a crucial mandate, the privatization of Air India 2020 under the current Finance Minister Nirmala Sitharaman was revived with the offer to sell a 100 percent stake in full.
A new decision-making mechanism has been worked out.
The government sweetened the deal for Air India buyers, giving them the flexibility to decide on the amount of Air India debt they would like to take on. The bids were tendered based on the company’s enterprise value, which includes both debt and cash on the company’s balance sheet.
Air India has suffered losses every year since its merger with Indian Airlines in 2007-08. A Turnaround Plan (TAP) as well as a Financial Restructuring Plan (FRP) were approved for Air India by the previous UPA regime in 2012. However, the TAP did not work and Air India continued to suffer losses as the government ruled Rs 20 crore / day to keep the airline afloat.
