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Air India divestment: SPA to be shared with bidders at EoI stage

Prasanta Sahu
Air India divestment, SPA, EoI stage, Amit Shah, Air India Express, Air India Air Transport Services

Taking lessons from last year's failed attempt to privatise Air India, the government has, this time round, decided to share the actual "sale and purchase agreement (SPA)" privately with prospective bidders at the EoI (expression of interest) stage itself to help them take long-term view of the various liabilities and accordingly plan their funding for the deal.

The fresh EoI, being prepared under the supervision of a home minister Amit Shah-led ministerial panel, would be out later this month. Among other tweaks, the government may take over additional debt from Air India and offer to completely exit the national carrier.

"Usually, we give open access to all data and the SPA draft to shortlisted bidders. However, these will be shared with interested parties at the EoI stage," an official aware of the matter told FE. The SPA would give a long-term view on what are the actual liabilities the buyer would take over, such as overall employee cost inclusive of provident fund and other benefits and how employees would be managed.

SPA sets out the agreed elements of the deal, includes a number of important protections to all the parties involved and provides the legal framework to complete the sale of a property. The SPA is, therefore, of critical importance to both sellers and buyers.

As per the audited accounts of FY18, the total debt of AI was Rs 55,309 crore but it is estimated to have increased to about Rs 60,000 crore by March 31, 2019. The board of AI will meet on Friday to approve the accounts for FY19, before proceeding with the fresh EoI for the carrier. AI losses are estimated to have widened to Rs 7,635 crore in FY19, from Rs 5,348 crore in FY18 and Rs 6,453 crore in FY17.

As part of the strategic disinvestment plan of Air India and Air India Express, the Cabinet on February 28 gave its approval for the AIAHL for warehousing of Air India (AI)'s accumulated working capital loan (Rs 29,464 crore) not backed by any asset along with four subsidiaries (Air India Air Transport Services), Airline Allied Services, Air India Engineering Services and Hotel Corporation of India, non-core assets, including painting and artefacts and other non-operational assets of AI, which would be monetised separately.

Besides the Rs 29,464-crore loan already taken over by the government through the SPV, it may take over additional loans from AI to make the sale more attractive for the prospective buyers, another official said. Loans backed by aircraft are estimated to be around Rs 15,000 crore, half of the residual debt with the airline.

Probable reasons as analysed by the transaction adviser EY for non-receipt of bids last year include the government's decision to retain 24% stake and corresponding rights, high amount of allocated debt, changes in macro environment, individuals not being allowed to bid, profitability track record and bidders not being able to form a consortium within given time period. The Shah-led panel would resolve some of the issues that hindered interested parties to bid last year.