The civil aviation ministry has approved a proposal by state-owned National Aviation Co. India Ltd, or Nacil, which runs Air India, to issueup to 5% of the firm’s equity capital as shares to employees.
The issue of shares, under a so-called employee stock option plan, or Esop, in 2008-09 is seen a first step towards an initial public offering (IPO) of Nacil shares later.
Taking wings: Nacil, the company which runs the largest Indian airline by fleet size, has an annual revenue of about Rs15,000 crore.
Under Esop schemes, employees are allotted shares at a “fair” value determined by an independent valuer, or at the market price if the firm is listed. After a vesting period, typically three-five years, the shares are transferred to the employees who can hold or sell them.
Nacil, the company which runs the largest Indian airline by fleet size, has an annual revenue of about Rs15,000 crore. The airline has a paid-up equity of Rs145 crore, which it is authorized to expand up to Rs1,500.05 core.
“An in-principle approval has been granted to them,” said civil aviation secretary Ashok Chawla in an interview. “A small percentage of government equity will be shared in a certain pattern,” he added without elaborating.
Air India had late last year sent a “conceptual plan” to the government for permission to offer Esops on the advice from its consultant Accenture Ltd. Though the modalities have to be finalized, the aviation ministry had said earlier that it was looking to offload 10-15% equity in the airline through an IPO.
Broadly the government has suggested that the national carrier follow a model already in place for public sector companies such as Maruti Udyog Ltd (now Maruti Suzuki India Ltd) and Steel Authority of India Ltd, which, too, have offered shares to employees in the past, under guidelines laid down by government’s department of public enterprises.
A senior Air India executive, who did not want to be identified, said the airline is likely to appoint Kotak Mahindra Capital Co. and DSP Merrill Lynch Pvt. Ltd to value Nacil before the issue of Esop shares. The two investment banking firms had valued Air India Ltd before it was merged with Indian Airlines Ltd to form Nacil.
An analyst argued that though being a state-owned airline there may be little problems on employee retention at Nacil today, that may be challenged in the future. “Right now, what you have opened is domestic skies, just wait and watch when airports open up, logistics opens up. It’s not a PSU (public sector undertaking) versus PSU comparison any more but PSU versus private sector,” Vikas Vasal, executive director, with consulting firm KPMG, said.
Subodh Gupta, an aviation analyst at Mumbai-based NM Rothschild India Pvt. Ltd, said Esops will serve as a “carrot” for the employees to “work right” in the absence of such incentives in government-run companies. “The next step is an IPO,” he said.