The privatization of Air India received a further seal of approval after the government signed a share purchase pact with Tata Sons on October 25th. The agreement is one of many steps lined up in the coming weeks before a successful transfer of Air India’s ownership could take place. For now, the Government of India looks on track to meet its year-end deadline to privatize the loss-making carrier.
Government inks agreement with Tata Sons
On Monday, the Indian government signed a sale purchase agreement with Tata Sons indicating that both parties agree to the terms and conditions of the deal. The process of transferring Air India to the Tatas officially began on October 11th when the government issued a letter of intent (LOI).
The LOI detailed all the terms and conditions related to the deal for the potential buyer. The sale purchase agreement is a legal document that suggests that both seller and buyer have understood and agreed to the terms of the transaction.
Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM), posted a tweet confirming the deal made between the two parties.
Share Purchase Agreement signed today by Government with Tata Sons for strategic disinvestment of Air India. pic.twitter.com/DRjKODxGbM
— Secretary, DIPAM (@SecyDIPAM) October 25, 2021
Tata Sons offered ₹18,000 crores (approx. $2.39bn) for Air India, beating a consortium led by SpiceJet promoter Ajay Singh who offered ₹15,100 crores ($2bn). Both bids were above the government’s reserve price of ₹12,906 crores ($1.71bn).
The signing of the sale purchase agreement is indeed a big step in the entire Air India privatization process, but there are still some tasks to be completed. Next come the approvals and clearances of regulatory bodies such as the DGCA and the Competition Commission of India.
This phase involves completing the Conditions Precedent (CP), in which clearances are required from regulatory bodies, creditors, and third-party vendors. If the financial statement prepared after this looks good to both parties involved, Tata Sons will proceed to pay ₹2,700 crores ($358.5mn) upfront as promised and take control of the airline.
This process is likely to take around eight weeks, so it looks like the government could meet the year-end deadline it has been aiming for. However, the Times of India reports that people familiar with the matter say there is a possibility of the completion process spilling over into the first few months of next year.
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Of the ₹18,000 crores ($2.39bn) offered by the Tatas, ₹15,300 crores will go towards clearing part of the carrier’s debt and ₹2,700 crores ($358.5mn) in cash to the government.
The Indian government will retain more than ₹44,000 crore of AI’s debt which it will gradually clear by selling the company’s non-core assets. Land and buildings owned by Air India, including the one in Mumbai’s Nariman Point, alone could fetch a few thousand crores.
As far as the Tatas are concerned, they will be in possession of multiple airlines – Air India, Air India Express, Vistara, and AirAsia India. As of now, there are all kinds of speculation about what type of model the Tatas would adopt. They could combine all four carriers to form one big entity or club AI and Vistara for full-service operations, and AisrAisa India and AI Express as a low-cost arm.
Once Air India is officially privatized, together with Vistara and AirAsia India, Tata Sons will own many more aircraft, both wide and narrowbody. They will also command an enviable hold on India’s international routes with all the new slots that Air India will bring in.
But for any of that to happen, we still have to wait a few more months until Air India finally returns home to the Tatas.