Air India sold, but approx. 75% of its debt remains on govt’s books
The Tata Group has bought the debt-ridden national carrier, Air India, for Rs 18,000 crore, which is good news, as the beleaguered airline can now be revived. The airline is also back in hands of its original owners. The catch, however, is that the Tatas have agreed to absorb only Rs 15,300 crore (part of the Rs 18,000 crore bid) of the huge debt of Rs 60,074 crore that Air India is saddled with (as of March 31, 2019).
The Tatas have won the bid to acquire debt-laden national carrier Air India from the government of India for Rs 18,000 crore, Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM), the government department responsible for privatisation, said on Friday.
Talace Private Limited, a wholly-owned subsidiary of Tata Sons Private Limited, the holding company of the salt-to-software conglomerate, beat the promoter of SpiceJet to bag Air India.
The transaction does not include non-core assets, including land and building, valued at Rs 14,718 crore, which are to be transferred to the government’s Air India Asset Holding Limited (AIAHL).
With this deal, the airline has returned to the Tatas. It was Jehangir Ratanji Dadabhoy (JRD) Tata who founded the airline in 1932, then called Tata Airlines. It became Air India in 1946, and in 1948, Air India International was launched with flights to Europe. In 1953, the company was nationalised.
“Welcome Back Air India,” wrote Ratan Tata, Chairman Emeritus, Tata Sons on Twitter after the announcement.
The airline will give Tata control of 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas.
The catch
However, as good as it may sound, there is a catch. With the attempts since 2017 failing to get any significant interest and after receiving feedback from potential investors, the government had in October 2020 sweetened the expression of interest (EoI) clause relating to the transfer of Air India’s debt to the new investor, giving bidders flexibility to decide on the quantum of the humongous debt they want to absorb.
Air India has a massive debt of Rs 60,074 crore as of March 31, 2019, which was the cut-off date for the debt that needed to be considered by the bidders, as decided by DIPAM. The Tatas’ winning bid of Rs 18,000 crore comprises the taking over of Rs 15,300 crore of that debt and paying the rest Rs 2,700 crore in cash.
This means that the rest of Rs 44,774 crore of debt, which comes to 74.54 per cent of the debt, remains on the government’s books, and the taxpayer will continue to keep paying the interest on that.
