The case refers to Air India as indistinguishable from the state. Hence, Air India’s assets could be potentially attached when on American soil as means to recoup the amount being claimed by Cairn Energy. There are many reasons for Cairn to go after Air India first. It is one of the most visible ambassadors of India abroad, and most importantly, an airline with a visible divestment programme in process.
The case refers to Air India as indistinguishable from the state. Hence, Air India’s assets could be potentially attached when on American soil as means to recoup the amount being claimed by Cairn Energy. There are many reasons for Cairn to go after Air India first. It is one of the most visible ambassadors of India abroad, and most importantly, an airline with a visible divestment programme in process.
Air India operates the largest number of non-stop flights from India to the US and hence has sizeable assets in the US include cash through the US operations, immovable assets, a lounge operated by Air India at New York JFK Terminal 4, apart from the planes which land frequently on US soil. The 18 Boeing 777 airframes in Air India’s fleet are all owned by the airline, which opens them to the possibility of attachment when operating flights to the US.
But does this mean that the airline’s privatisation might be derailed? Not really. The privatisation might be delayed on account of a soft aviation market in India due to the pandemic and hence, the expectation of a potential buyer to pay a lower price than what the government wants. This new twist could come handy to negotiate the price further downwards, but not to stop a sale outright. Unless more such suits might be coming in other jurisdictions where Air India may have sizeable operations, for a similar outcome, which might erode value quickly.
M&A contracts can build in indemnity for the potential acquirer from the impact of such cases. More so, whosoever the buyer, could potentially identify the liability and agree to put such an amount in an escrow account subject to resolution of the case rather than paying it to the government upfront.
The Government does not expect this suit to harm the sale. For one, they do not expect the proceedings in this case to be enforceable on the grounds that they are contesting the arbitration award granted in the courts in The Hague, although the case is going to be heard only in September 2021. On the other hand, they are expecting the sale process to move quickly, and hence, a change of the airline’s status from a sovereign asset to a private company.
Spooked by this case and other issues at Air India (a due diligence is ongoing at the moment), If interested parties do not submit a bid by the deadline, then that could mean a fresh bidding process all over again. This could also mean that this would give the bidders enough time to build an international network organically, further reducing their interest in Air India.
18/05/21 Ajay Awtaney/FreePressJournal
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