After two decades of running on losses, finally, Air India will not continue on Rs 20 Crore per day of the taxpayer’s money. It went through two aborted missions, more than a few changes in the ministers, and multiple rule changes to finally get privatized.
In response to the opposition Congress continuously criticising the decision and even describing it as selling the family silver, DIPAM secretary Tuhin Kanta Pandey, in a statement, said that Tata isn’t getting a cash cow but what they are getting is a bleeding airline. He further told that it’s an airline where money needs to be pumped in to restore the obsolete aircraft and dust up the strangled ones. All these while keeping the employees for a year when they can resize the staff after paying them a VRS.
According to a report from PTI, Pandey said that it wouldn’t be an easy task at the airline. He talked about how the new owners are paying the price they think they can manage and how they are not accumulating debts in order to furnish the decades of losses. He said that this process has also saved a lot of taxpayers’ money going forward.
The Process of Acquisition
The changes came about this month as Talace Pvt. Ltd., a unit of the holding company TATA Group won the bid of acquiring Air India by paying Rs 2700 Crore cash and taking over the debt of Rs 15,300 Crores of the airlines.
According to the data, Air India had a total debt of Rs 61,562 crores as of August 31, 2021. 75% of this total debt, i.e., 46,262 crores, is to be transferred to a special purpose vehicle AIAHL, and then the airlines would be given in the hands of the TATA group.
The company's non-core assets, such as the Vasant Vihar housing colony of Air India, the Air India building at Nariman Point in Mumbai, and the Air India building in New Delhi, are not up for retention by Tata Group. However, Pandey informed that they have allowed for use for two years and would be devising a monetization plan in the meantime so that it can be used to set off AIAHL liabilities.
Part of the deal includes the acquisition of 141 planes of Air India, out of which 99 are owned, and 42 are leased. This deal would include Tata taking over overcapitalized lease liability on account of operating leases of Rs 9185 crore. Some of these 141 planes are also not in use due to maintenance issues, and some are simply obsolete.
A Letter of Intent (LOI) has been issued to TATA by the government affirming the willingness to sell its 100% stake in Air India on October 11th. The government has decided to divest its 100% ownership of Air India and Air India Express and also the 50% stake in its ground handling company AISATS. The Share Purchase Agreement (SPA) will be signed after TATA accepts the LOI, which normally takes 14 days. The government, however will be paying the current liabilities of Rs 16000 crore, which is owned by Air India, to its suppliers.
The acquisition of Air India would make it the third airline under the belt of TATA. They already own a majority interest in Air Asia, India and Vistara. The ownership of Air India would also give them a total of 4400 domestic and 1800 international landing and parking spots at domestic airports. Moreover, a total of 900 spots at various international airports.
The Saga of Privatizing Air India
The first plan to privatize Air India came about during the Atal Bihari Vajpayee government, where they offered a 40% stake in the government-owned airlines. Many international airlines, including the likes of Lufthansa, Swissair, Air France-Delta, British Airways, Emirates, and Singapore Airlines (SIA), were interested but had to pull out as the government vested their interests in a local partner.
However, the two domestic companies, one of which was Hinduja, was disqualified because of their involvement in the Bofors scam while TATA’s partner SIA had to pull out reasoning to adverse climate and opposition to privatization.
In 2017 Arun Jaitley, as finance minister, tried to restart the privatization plan but no bidders expressed interest as the government wanted to hold a 26% stake in the airlines. The last four years of uncertainty over privatization had adverse effects. Air India had to deal with a dip in the morale of the employees and a rise in inefficiency in the organization.
However, things turned around in 2020 as Modi took a decisive mandate and under finance minister Nirmala Sitharaman the privatization was revived by offering a complete sell of 100% stake. They even came up with a new mechanism for the process. To attract more parties government gave them the flexibility to chose upon the debt bidders want to absorb. The bids were invited on the company's enterprise value, which includes debt and cash on the company's balance sheet.
TATAs acquired the airlines by beating the bid of Rs 15,100 crore offered by a conglomerate led by SpiceJet promoter Ajay Singh. They also bid past the reserve price of 12,906 crores set by the government for a 100% stake at the company.