The government is proceeding with utmost caution before putting Air India on the block, after potential buyers baulked at its first attempt to divest a majority stake in the national carrier last year.
“We will release the draft share purchase agreement (SPA) along with Expression of Interest (EoI). Last time, it was released after the EoI stage. A lot of potential investors raised questions at the pre-bid stage after the EoI was released. We had told them that those issues will be cleared in the draft SPA. So, nobody submitted EoI. Investors should have more transparent information at the very beginning. Through the draft SPA, they could know the details of liabilities including employee costs, their benefits and the dos and don’ts," a senior finance ministry official said under condition of anonymity.
Potential investors will also have access to a virtual data room at the stage of EoI under a confidentiality agreement, where they can raise queries about unclear liabilities.
Preparation is taking some time, said the official quoted above. “Ground work is very important. The more preparation we do now, the more time we save later. What matters is closing the deal," he said.
The department of investment and public asset management (DIPAM) needs to first take clearance from the core group of secretaries on disinvestment headed by the cabinet secretary and then from the Air India Specific Alternative Mechanism headed by home minister Amit Shah, before publishing the EoI and draft SPA documents.
To reduce the debt burden on Air India, the government has transferred around ₹29,464 crore to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle (SPV) meant to park some of the airline’s debt not backed by any asset, non-core assets and other non-operational assets. “Some more debt will have to be taken out. At present, the negative net worth of Air India is upward of ₹30,000 crore. We cannot even start the bidding process which is not meeting minimum investor concerns. In the EoI, the debt amount will be mentioned," the official said.
Air India posted operating loss of ₹4,685 crore in 2018-19 and had total debt of ₹58,282.92 crore as on 31 March 2019, according to government submissions in the Lok Sabha.
The official said the whole process is moving systematically and professionally. “DIPAM has set up an independent external monitor headed by former chief justice of India R.C. Lahoti who is vetting the whole process. We will also use the e-bidding platform," he said.
The official denied that Air India has too many personnel. “Cost of Air India’s personnel is not very high. At around 11,000 personnel, the employee cost is 10.7% of total cost. Some international airlines have 20% employee cost. Trained employees could turn out to be the strength of Air India," he said.
There is sufficient interest in Air India now, the official said. “We have met investors during roadshows. They are evaluating it. But they need a lot of information. They are looking at the financials. Somebody with proper management and funding should come in," he said.
Meanwhile, the Swadeshi Jagran Manch, in a resolution passed on Sunday, opposed strategic disinvestment of public sector enterprises, holding it to be against national interest. “The strategic disinvestment of national carrier Air India and oil marketing company BPCL at this hour is uncalled for. Air India requires restructuring and professional management, not disinvestment. Close scrutiny of Air India’s financial and other documents, reveals that the restructuring of Air India’s debts and assets can not only reduce the liabilities for the company but also spin the national carrier back into profits," it said.