Air India stake sale: Five questions which need to be answered

The government has floated Express of Interest (EoI) document asking potential buyers of Air India to submit their bids for 76 per cent stake in the national carrier. Nearly 10 months after the finance minister Arun Jaitley publicly spoke about the intention of the government to sell its stake in Air India. Over the past few months, there were a lot of speculations and reports on the disinvestment process. The EoI, for which the audit firm EY has been roped in, has put to rest some of the conjectures around the deal. But some pertinent questions still remain unanswered. Here's a list of them:
 
Debt: Perhaps the biggest deterrent for a potential buyer is Air India's huge debt pile. The EoI document talks about selling 76 per cent stake in Air India, 100 per cent stake in Air India Express (AIXL) and 50 per cent stake in AISATS (ground handling subsidiary of AI). Together, these entities have debt and contingent liabilities of Rs 54,742 crore as on March 2017. Under the proposed sell-off, the new buyer will have to take over some of the existing debt and liabilities of AI and AIXL - Rs 33,392 crore - as part of debt reallocation. The logic behind arriving at Rs 33,392 crore seems to be missing from the document which will leave potential bidders scratching their heads. "Details of this debt/liabilities reallocation shall be shared at RFP [request for proposal] stage," says the document. RFP is the second stage of the disinvestment process after the government receives initial proposals.
 
Employees: Together, Air India, AIXL and AISATS have 40,809 people under various types of employment terms. The EoI document mentions that the Air India's employee cost is one of the lowest in its peer group, the fact that a large amount of the workforce of Air India and AIXL is working with other group subsidiaries, and vice-versa, can potentially complicate the issue. For instance, AI employs 2,597 people from Air India Air Transport Service Limited (AIATSL), and another 29 from Airline Allied Services Limited (AASL). Some of this workforce is assumingly crucial for the functioning of the AI and its subsidiaries. Since the four other subsidiaries of AI - AIATSL, AASL, HCI (Hotel Corporation of India) and AIESL (Air India Engineering Services Limited) - are not part of the deal, what is going to happen to these employees post the deal. Some clarity is indeed required.
 
Timeline: The document says that the last date for submission of interest is May 14, and the qualified bidders will be informed by May 28. Since the document has covered broad areas of the AI's disinvestment, it would have been helpful if the document has also mentioned the timeline of the deal since the whole process will be divided into various stages. It would have given clarity to the potential bidders on planning their investment requirements better in addition to making the process look more transparent to the public at large.
 
Besides, the document says that the four AI subsidiaries which are not part of this transaction will be hived off (along with any payables related to them) through demerger or other appropriate mechanisms before the closing of the transaction. When and how these subsidiaries will be hived off is also missing.
 
Consortium: The document goes on to define the eligibility of consortium - two-member or three-member - which is a bit complex not because the terms laid out are not defined properly but the need to put such conditions (for a consortium) is not defined at all. For instance, one partner has to be 51 per cent stakeholder in the consortium. The partner will disqualify if it owns 60 or 70 per cent. The logic for deriving the 51 per cent is not illustrated in the document.
 
Subsidiaries: On what basis the government has decided to make two subsidiaries to be part of the transaction since one of them is not an airline business - AISATS. Why other subsidiaries, including an airline (Alliance Air) have been kept out of the deal?