Air India privatisation: Big bonanza coming for employees; top 5 updates

The latest offer will include Rs 333 billion ($5.1 billion) of debt that the buyer will have to take over, with the balance going to the government

After the government on Wednesday proposed a divestment of 76 per cent of its stake in Air India, it is learnt that the airline's employees would be given stock options after privatisation. The sale will include Air India's shareholding in low-cost Air India Express and its joint venture ground handling subsidiary AISATS.

Speaking to Business Standard, an official said, "Permanent employees will be given stock option in the company, it will be given from the residual stake the government will hold in Air India." This, along with an assurance of job continuity for the next one year, is the government’s step to reassure employees, the official added. 

The airline’s overseas budget carrier, having a Rs 470-bn debt, will be completely sold in the offer, while the state will sell a 50 per cent stake in the ground-handling unit separately. The administration might also ask the buyer to conduct an initial public offering.

Moreover, a successful sale of the cash-strapped flag carrier rests on the efficiency of the Modi government to polish as well as boost his spending on health and education. The national carrier has five subsidiaries, a joint venture and a combined workforce of as many as 27,000.

The latest offer in the Air India privatisation offer will include Rs 333 billion ($5.1 billion) of debt that the buyer will have to take over with the balance going to the government.

“Selling a 76 per cent stake is the second-best option for the government; the best option would have been to exit completely,” Kapil Kaul, South Asia CEO at CAPA Centre for Aviation told Bloomberg. “There’s also a caveat there that the acquirer will have to list the company, which means the government is looking at exiting through an IPO route, which is fair enough and very positive," he added.

Here are the top 10 developments around the government's decision to sell a 76% stake in Air India, its terms, and what the new owner and employees of the airrline might get in the deal: 

1. Air India's new owners to inherit planes, $5 bn of debt: According to Bloomberg reports, IndiGo is the only company to publicly disclose a desire to buy Air India’s airline operations, Apart from that, Singapore Airlines Ltd and India’s Tata Group, which run a joint venture airline named Vistara in India, said they were also open to looking at the sale. 

The latest offer will include 333 billion rupees ($5.1 billion) of debt that the buyer will have to take over with the balance going to the government.

India intends to sell the remaining stake in Air India, which may include selling shares during an initial share sale. The government will not sell shares in a block, according to the document.

2. Mamata seeks withdrawal on Air India divestment: West Bengal Chief Minister Mamata Banerjee put her foot down on the privatisation process and  "strongly opposed" the Central government's decision to invite 'Expression of Interest' to divest 76 per cent stake in national carrier Air India and wanted the order to be withdrawn immediately.

Banerjee, also the Trinamool Congress supremo, also said the Narendra Modi government "must not be allowed to sell the country".

"I am sorry to read in the media about the government inviting expression of interest for selling Air India, the jewel of our nation. We strongly oppose this and want this order to be withdrawn immediately. This government must not be allowed to sell our country," she told IANS. 

3. Air India employees will be given stock options, says Jayant Sinha: Speaking to The Times of India, Union minister of state for civil aviation Jayant Sinha said that NDA is trying to reverse the damage inflicted by UPA on AI and make it a great global airline.

TOI reported Jayant Sinha saying, "We envision a very bright future for the employees as Air India will be a great global airline. Employees have arrears of Rs 12.98 billion and the government has decided that this amount will be paid by it and not be transferred to the airline. We are going to carve out Esops from the 24 per cent stake that the government retains. That way employees will also own the new AI. There will be other important safeguards for protecting employee interests which will be spelt out in the request for proposal."

4. Govt stake may fall below 20 per cent once ESOP pool is created for Air India staff: According to the information memorandum released by the government, the airline has 11,214 permanent employees. Of that, around 37.6 percent will be retiring in the next five years.

The officials said that the employees exercising the ESOP option will be able to monetise the stock when the airline is listed in the stock market.

As part of the disinvestment process, the government has made it mandatory for the successful bidder to list the airline three years after assuming management control. “ After creating the ESOP pool, government holding will fall to around 20 percent, rest will be sold off the government in parts,” the official said.

5. New owner to bear 48% of Rs 470-bn debt: Management or employees can participate directly in the bidding process or by way of forming a consortium, as per the memorandum. Out of Rs 470-billion debt, the new owner will bear only Rs 245.76-bn debt. Rest will be hived off to a Special Purpose Vehicle.

Last date for expressing interest is May 14 and shortlisted bidders to be intimated on May 28. Minimum net worth requirement to bid for Air India set at Rs 50 billion.