According to some sources, Tata Sons Ltd, the front-runner is to buy state-run Air India Ltd, and the government is close to finalising the purchase terms, having narrowed their differences on the three major sticking points of pension liabilities, real estate assets, and debt.
Final talks between the two parties are underway, and the Tata group is expected to submit a financial bid as early as this month, according to people who spoke on the condition of anonymity.
Air India, which has been surviving on a government bailout, is on the market. Since its merger with state-owned Indian Airlines in 2007, the airline has failed to make a profit every year. The Tata group, which already owns AirAsia India and Vistara, hopes that acquiring Air India will give it access to lucrative airport slots in India and abroad, as well as a large aircraft fleet. The airline, however, is saddled with a massive debt load, an unionised workforce, and significant pension obligations.
Many of Air India’s employees are set to retire in the coming years, making the company’s change of ownership a sensitive issue for the employees, who would prefer that the government handle pension-related issues, according to one of the sources.
After Air India’s control changes hands, both sides are talking about who will own the airline’s vast real estate assets, such as staff quarters and residential colonies, according to the second source.
As part of the government’s disinvestment process, the majority of Air India’s real estate assets were transferred to Air India Assets Holding Ltd in 2019. “While Tata Sons are keen to have such assets under its control, many Air India employees may not be happy to see the airline’s residential premises and other real estate assets pass into private hands,” the person said.
The winning bidder will also have to absorb a portion of Air India’s massive debt load. As of March 31, 2019, Air India’s net debt was around 58,255 crore. Later that year, the airline’s debt was transferred to the SPV for a total of Rs. 29,464 crore to make it more appealing.
“The Tata group already has $27 billion in debt and is not interested in taking on more. According to current talks, the government may absorb around $5 billion in debt, with the remainder being transferred to the Tata group to ensure that the burden is shared equally,” said the first person.
“In this way, the airline can be revived and turned profitable under private ownership, something the government has struggled to do so far,” the person added.
Tuhin Kanta Pandey, the secretary of the department of investment and public asset management, which is overseeing the sale of Air India, and spokespeople for Tata Sons and Air India did not respond to requests for comment.
Air India is expected to lose about 9,500-10,000 crore in 2020-21, more than the 8,000 crore it lost the previous fiscal year, due to a drop in travel demand due to the Covid-19 pandemic.
The government wants to sell the national carrier as soon as possible. Civil aviation minister Hardeep Singh Puri said last week that shortlisted bidders will have to submit financial bids within the next two months, with the option of disinvestment or shutting down the airline.
To speed up the disinvestment process, Air India has asked its officers to come to work on Saturdays, which are normally holidays.
According to several media reports, Tata Sons and a consortium led by SpiceJet chairman Ajay Singh, the Ras Al Khaimah Investment Authority, and Ankur Bhatia, the promoter of the Delhi-based Bird group, are the two bidders for Air India.
