Apr 16, 2018 05:36 PM IST | Source: Moneycontrol.com

Air India disinvestment: Devils that may hold back Air India sale this financial year

No government would want to make the wrong kind of headlines in an election year and this is not just one reason why Air India's disinvestment may not happen soon. Here are other reasons why it won't see the light of the day this financial year

Dhirendra Tripathi
TOP CONTENDERS| InterGlobe Aviation and Jet Airways will not bid under the current norms. Foreign entities including foreign airlines can own only up to 49 per cent stake in the airline, limiting their interest.
1/12

TOP CONTENDERS| InterGlobe Aviation and Jet Airways will not bid under the current norms. Foreign entities including foreign airlines can own only up to 49 per cent stake in the airline, limiting their interest.
POLITICAL IMPLICATIONS | Remember 2019 is an election year and a new government has to be sworn in May. Any query from the interested bidders requiring clarification and others procedural matters would only push back the process to next year.
2/12

POLITICAL IMPLICATIONS | Remember 2019 is an election year and a new government has to be sworn in May. Any query from the interested bidders requiring clarification and others procedural matters would only push back the process to next year.
ELECTION CAUTION | No government would want to make the wrong kind of headlines and be seen as compromising interests of employees of its own company in an election year.
3/12

ELECTION CAUTION | No government would want to make the wrong kind of headlines and be seen as compromising interests of employees of its own company in an election year.
BUREAUCRACY AT PLAY | A typical bureaucratic way of execution -- bundling sale of loss-making AI with profitable arm Air India Express. AI made a loss of Rs. 5,765 crores in FY17 against AI Express’ profit of Rs. 297 crores. Both may be attractive but only individually to different set of buyers.
4/12

BUREAUCRACY AT PLAY | A typical bureaucratic way of execution -- bundling sale of loss-making AI with profitable arm Air India Express. AI made a loss of Rs. 5,765 crores in FY17 against AI Express’ profit of Rs. 297 crores. Both may be attractive but only individually to different set of buyers.
LACK OF CLARITY | No clarity yet on AI’s terms of agreements with aircraft suppliers (Boeing and Airbus) and vendors. Typically compared to private airlines, AI’s terms and conditions are very favourable to the other side, something a new buyer will not like.
5/12

LACK OF CLARITY | No clarity yet on AI’s terms of agreements with aircraft suppliers (Boeing and Airbus) and vendors. Typically compared to private airlines, AI’s terms and conditions are very favourable to the other side, something a new buyer will not like.
LIABILITIES | Huge workforce and consequent wage bill, pension liabilities. As on December 31, AI alone had 11,214 permanent staff excluding 2,913 contractual and 2,155 casual. There were 2,661 employees on deputation.
6/12

LIABILITIES | Huge workforce and consequent wage bill, pension liabilities. As on December 31, AI alone had 11,214 permanent staff excluding 2,913 contractual and 2,155 casual. There were 2,661 employees on deputation.
Up to 4,217 employees will retire by March 2023. No buyer would want to take that pension liability. There are as many as 6 unions at AI -- pilots have one, engineers have one too. It won’t be easy to persuade a pampered lot, long used to enviable perks and freebies
7/12

Up to 4,217 employees will retire by March 2023. No buyer would want to take that pension liability. There are as many as 6 unions at AI -- pilots have one, engineers have one too. It won’t be easy to persuade a pampered lot, long used to enviable perks and freebies

PERKS OF AIR INDIA EMPLOYEES FLY HIGH | AI employees, including retired ones, get lifetime benefit of subsidized air travel. Each gets a gratuity of up to Rs 10,00,000. You can’t imagine this happening in private sector. Encashment of privileged leaves up to a whopping 300 days and of sick leaves up to 120 days, another big liability.
8/12

PERKS OF AIR INDIA EMPLOYEES FLY HIGH | AI employees, including retired ones, get lifetime benefit of subsidized air travel. Each gets a gratuity of up to Rs 10,00,000. You can’t imagine this happening in private sector. Encashment of privileged leaves up to a whopping 300 days and of sick leaves up to 120 days, another big liability.
Medical cover for retired employees and their spouse. AI employees, including retired staff, along with their spouses enjoy subsidised stay all their lives at various hotels the airline has tie-ups with
9/12

Medical cover for retired employees and their spouse. AI employees, including retired staff, along with their spouses enjoy subsidised stay all their lives at various hotels the airline has tie-ups with
EOI SILENT ON THESE DETAILS BUT WHAT WILL RFP HAVE | Valuation being done to calculate accrued liability towards staff. Air India is buying two Boeing 777-300ER for VVIP operations on govt’s behalf. These planes will be operated and maintained by AI. Details to be provided in request for proposal to be issued later by govt.
10/12

EOI SILENT ON THESE DETAILS BUT WHAT WILL RFP HAVE | Valuation being done to calculate accrued liability towards staff. Air India is buying two Boeing 777-300ER for VVIP operations on govt’s behalf. These planes will be operated and maintained by AI. Details to be provided in request for proposal to be issued later by govt.
Details of assets, land to be provided at the time of RFP issue. AI will continue to operate from some of the land and buildings for at least two years after the transaction.
11/12

Details of assets, land to be provided at the time of RFP issue. AI will continue to operate from some of the land and buildings for at least two years after the transaction.
RFP will also reveal details AI’s frequent flyer programme. There are also non-current investments made by AI. Some of these are not needed for operations of the three companies being divested and may be hived off to a special purpose vehicle.
12/12

RFP will also reveal details AI’s frequent flyer programme. There are also non-current investments made by AI. Some of these are not needed for operations of the three companies being divested and may be hived off to a special purpose vehicle.