Saturday, October 09, 2021

Deconstructing the deal: What Air India takeover means for Tata Group

The Tata group is effectively taking over a fourth of Air India's total debt, will have to retain at least 51% stake and its 12,000 employees for a year, stick to a business continuity clause for three years and retain its brand for 5 years, as part of the disinvestment deal.

The Tata group subsidiary Talace Pvt Ltd, Friday won the bid for Air India and its subsidiary Air India express. The total bid based on the enterprise value is Rs 18,000 crore. Of that Rs 15,300 crore will be the airline's debt taken over by the Tatas while the rest Rs 2,700 crore will be cash paid to the government.

The reserve price was set at Rs 12,906 crore.

Air India's debt as of August 31, 2021 ballooned to a massive Rs 61,562 crore, primarily raised on sovereign guarantees to fund its losses. The airline's accumulated losses as of March end 2021 was Rs 70,820 crore.

After the deal, the government will take on Rs 46,262 crore worth of debt and Rs 14,718 worth of assets which includes real estate. All of it will be transferred to a special purpose vehicle called Air India Asset Holdings Ltd.

DIPAM secretary Tuhin Kanta Pandey said the next impact to the government will be Rs 44,679 crore. Pandey said the debt that the government is taking on will be retired. The lenders will not have to face a haircut as they are protected by the sovereign guarantees, which assure the lender that the government will repay loans if the company cannot. The assets will eventually be monetised.

The national carrier has been surviving on taxpayer's money for the last decade. Pandey said the government support to the airline in the form of equity and sovereign guarantees since 2009-10 is Rs 1,10,276 crore. In other words more than a trillion rupees of taxpayer's money has been used up in the last 10 years to keep the airline afloat.

Air India now has 12,085 employee on its books. 8,084 of them are permanent while 4,001 are on contract. Air India Express has 1,434 employees. The Tatas will have to retain them for a year. If they are retrenched post it has to be under a voluntary retirement scheme. About 5,000 employees will automatically retire in the next five years. Employees can be sacked on the basis of performance or as part of a disciplinary action.

While the Tatas have full freedom to operate Air India, they will be bound by a business continuity clause, said Pandey without elaborating.

They will also have to retain the brand for five years. After that they can sell it but not to a foreign entity.

08/10/21 Anirban Chowdhury & Nehal Chaliawala/Economic Times

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