Air India: Government Notifies Air India Asset Transfer Agreement with AIAHL; staging for the transfer of AI to the Tata group

The government has notified the agreement between Air India and the ad hoc company AIAHL for the transfer of non-core assets, ahead of the takeover of the national airline by the Tata group. The government had in October last year, signed the share purchase agreement with the Tata Group for the sale of the flag carrier Air India for Rs 18,000 crore.

The Tata group is expected to take full control of the airline, founded in 1932, on Thursday. The cash component of the deal would come after the transfer process is complete.

The Tata Group would pay Rs 2,700 crore in cash and take over Rs 15,300 crore of the airline’s debt. The deal also includes the sale of Air India Express and the AISATS ground handling arm.

The transaction was expected to be completed in December 2021, but the deadline was later extended to January 2022, due to longer than expected time to complete procedural work.

This will mark Air India’s return to the Tata fold after 67 years. The Tata Group had founded Air India as Tata Airlines in October 1932. The government nationalized the airline in 1953.

As a forerunner of the transfer process, the Department of Investment and Public Assets Management (DIPAM) on January 24 notified the Framework Agreement entered into by and between Air India Ltd and AI Assets Holding Ltd (AIAHL) for the transfer of the assets of the postal carrier ceasing to be a public sector company.

AIAHL was established in 2019 by the government to hold debt and non-core assets of the Air India Group.

Four subsidiaries of Air India – Air India Air Transport Services Ltd (AIATSL), Airline Allied Services Ltd (AASL), Air India Engineering Services Ltd (AIESL) and Hotel Corporation of India Ltd (HCI) – as well as non-core assets, paintings and works of art, as well as other non-operating assets, were transferred to the SPV.

In October last year, Tatas beat a bid of Rs 15,100 crore from a consortium led by SpiceJet promoter Ajay Singh and the reserve price of Rs 12,906 crore set by the government for the sale of its 100% interest in the loss-making carrier.

As of August 31, 2021, Air India had a total debt of Rs 61,562 crore. About 75% of this debt or Rs 46,262 crore will be transferred to the special purpose vehicle, AIAHL, before handing over the loss-making airline to the Tata Group.

In addition, Air India’s non-core assets including land and buildings valued at Rs 14,718 crore are also transferred to the AIAHL.

Tatas could not retain non-core assets such as Air India’s Vasant Vihar housing colony, Air India Building at Nariman Point, Mumbai and Air India Building in New Delhi.

Of the 141 Air India planes Tatas would get, 42 are leased planes while the remaining 99 are owned.

Although this is the first privatization since 2003-04, Air India will be the Tatas stable’s third airline brand – it has a majority stake in AirAsia India and Vistara, a joint venture with Singapore Airlines Ltd.

Air India will give it access to a fleet of 117 wide-bodied and narrow-body aircraft and Air India Express Ltd to another 24 narrow-body aircraft in addition to control of 4,400 domestic landing and parking slots and 1,800 international in the domestic airports, as well as 900 slots at overseas airports, such as London Heathrow.

Air India has started to suffer losses every year since its merger with Indian Airlines in 2007-08. A Recovery Plan (TAP) as well as a Financial Restructuring Plan (FRP) was approved for Air India by the former UPA regime in 2012. However, the TAP did not work and Air India continued to suffer losses, with the government giving Rs 20 crore/day to keep the airline afloat.

Over the past decade, more than Rs 1.10 lakh crore has been infused in the form of cash support and loan guarantee into the loss-making airline to keep it afloat. The airline is currently suffering losses of Rs 20 crore/day.

On a stand-alone basis, Air India reported a net loss of Rs 5,422.6 crore in the April-September period of the current financial year ending March 2022.

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