 "Tatas have liberty to refer new balance sheet to CAG-approved CA: TK Pandey")
DIPAM Secretary TUHIN KANTA PANDEY on Friday told reporters that any further delay in selling off Air India would have cost the government Rs 7,200 crore a year. Edited excerpts:
How will debt of Air India be treated post the sale?
The debt position of the airline post acquisition by Tatas would be Rs 46,262 crore. Excess liabilities of Rs 15,834 crore would be transferred to the government. After netting the value of non-core assets (Rs 14,718 crore) that will be transferred to AIAHL (Air India Assets Holding), the impact on the Centre after transferring of excess liability would be Rs 44,679 crore.
The government has also ranked the order of debt to be retained by the buyer, and high ranking or priority debt will be taken over by the buyer, and lower ranking debt with government guarantee would remain with the Centre.
How will losses be treated after signing the deal with the new buyer till deal completion?
After closing of the deal, and post getting all approvals, a latest balance sheet of Air India will be prepared. This will have net current liabilities of zero. A new balance sheet will be given to the buyer on the cut-off date, and if they have an issue with it, they can refer to a chartered accountancy firm approved by the CAG. The determination by the CA will be final.
When the deal is signed, there will be standstill obligations on the company that it cannot take big contracts and will have to undertake normal business. If such decisions need to be taken, the new buyer will have to be consulted. The closure of the deal will take place in December-end.
Will there be any other conditions that will have to be met post signing the deal until the handover?
There is an agreement on aircraft that a certain number of them need to be in fly-worthy condition. About 58 A320 aircraft, among others, are in fly-worthy condition.
How would Air India One and missions such as Vande Bharat be treated?
Rescue missions such as Vande Bharat are on a cost recovery basis. Air India One has been transferred to the Indian Air Force. This will also be on a cost recovery basis.
How was the reserve price set?
Discounted cash flow methodology, comparative multiples, market multiples, balance sheet method and asset valuation method were followed to derive before finalising the reserve price. Covid period was not considered while deciding the value of the airline, and recovery phase should be considered. A weighted average of certain parameters was used to derive the valuation.
To arrive at the terminal value, FY21-FY24 were not considered because it would have otherwise been negative. FY25 to FY27 post recovery scenario average was considered while arriving at the terminal value.
How much would a delay in the Air India sale cost the government?
The government had also considered a scenario where it would have to wound up the airline, which would have cost it Rs 60,000 crore. Accumulated losses of the airline is Rs 83,916 crore and its net worth is (-) Rs 44,507 crore as on March 31. Industry is expected to recover in 2023-24 and there are a number of uncertainties going forward. Apart from uncertainty, the Centre would also have to factor in the cost due to the support to the airline in the interim which based on past records (pre-covid period) would involve a very significant outgo of Rs 600 crore a month or Rs 7,200 crore per year. The value of assets would have further depreciated.
When will the new buyer vacate the Air India building/offices?
The new buyer can use three buildings of Air India — The Air India Building at Nariman Point in Mumbai, one training centre, and the Airlines House in Delhi for a period of two years. Apartments of Air India can be occupied for six months.
How will debt of Air India be treated post the sale?
The debt position of the airline post acquisition by Tatas would be Rs 46,262 crore. Excess liabilities of Rs 15,834 crore would be transferred to the government. After netting the value of non-core assets (Rs 14,718 crore) that will be transferred to AIAHL (Air India Assets Holding), the impact on the Centre after transferring of excess liability would be Rs 44,679 crore.
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AIAHL will raise money through government-guaranteed bonds and pay off lenders or the government will ask the lenders to novate the guarantee to AIAHL as most of these loans are not backed by assets, especially aircraft.
The government has also ranked the order of debt to be retained by the buyer, and high ranking or priority debt will be taken over by the buyer, and lower ranking debt with government guarantee would remain with the Centre.
How will losses be treated after signing the deal with the new buyer till deal completion?
After closing of the deal, and post getting all approvals, a latest balance sheet of Air India will be prepared. This will have net current liabilities of zero. A new balance sheet will be given to the buyer on the cut-off date, and if they have an issue with it, they can refer to a chartered accountancy firm approved by the CAG. The determination by the CA will be final.
When the deal is signed, there will be standstill obligations on the company that it cannot take big contracts and will have to undertake normal business. If such decisions need to be taken, the new buyer will have to be consulted. The closure of the deal will take place in December-end.
Will there be any other conditions that will have to be met post signing the deal until the handover?
There is an agreement on aircraft that a certain number of them need to be in fly-worthy condition. About 58 A320 aircraft, among others, are in fly-worthy condition.
How would Air India One and missions such as Vande Bharat be treated?
Rescue missions such as Vande Bharat are on a cost recovery basis. Air India One has been transferred to the Indian Air Force. This will also be on a cost recovery basis.
How was the reserve price set?
Discounted cash flow methodology, comparative multiples, market multiples, balance sheet method and asset valuation method were followed to derive before finalising the reserve price. Covid period was not considered while deciding the value of the airline, and recovery phase should be considered. A weighted average of certain parameters was used to derive the valuation.
To arrive at the terminal value, FY21-FY24 were not considered because it would have otherwise been negative. FY25 to FY27 post recovery scenario average was considered while arriving at the terminal value.
How much would a delay in the Air India sale cost the government?
The government had also considered a scenario where it would have to wound up the airline, which would have cost it Rs 60,000 crore. Accumulated losses of the airline is Rs 83,916 crore and its net worth is (-) Rs 44,507 crore as on March 31. Industry is expected to recover in 2023-24 and there are a number of uncertainties going forward. Apart from uncertainty, the Centre would also have to factor in the cost due to the support to the airline in the interim which based on past records (pre-covid period) would involve a very significant outgo of Rs 600 crore a month or Rs 7,200 crore per year. The value of assets would have further depreciated.
When will the new buyer vacate the Air India building/offices?
The new buyer can use three buildings of Air India — The Air India Building at Nariman Point in Mumbai, one training centre, and the Airlines House in Delhi for a period of two years. Apartments of Air India can be occupied for six months.