Air India divestment: Permission to retrench staff may clinch deal in second bid

A government proposal sweetening the Air India divestment deal further with permission to retrench staff after one year could clinch the deal, reports say. After failing to sell the loss-making national carrier in a bid last year when the government of Prime Minister Narendra Modi sought to retain a 24 percent stake, the government is already offering in sale 100 percent stake.

"There are the two proposals being discussed – one is to allow them to retrench after one year and the other is to give three years," a report on the Economic Times website said quoting an unidentified source. "It would make sense to allow future owners to retrench staff after a year's time."

"There would be conditions like employees can only be retrenched through the government's voluntary retirement scheme (VRS)," the report said. Under VRS, an employee gets an amount that's equivalent to the last-drawn monthly salary multiplied by either the years of service completed or those left, whichever is less, the report says. The employee also gets other compensation that the person is eligible for.

Allowing future owners to terminate jobs will be a key change in the offer from last year's failed divestment process when the government promised the staff job protection. The proposals will be put before the committee under Home Minister Amit Shah, the sources said.

The government's attempt to privatize 76 percent equity in Air India drew a blank last year due to a number of reasons, reports say. These included staffing levels, employee medical benefits as well as post-retirement flying privileges for workers and their families, alongside a mountain of working capital debt. The government is now looking to fully exit the carrier's ownership.

Industry sources say that one of the drawbacks of last year's bid to offload Air India shares was a lack of clarity on several matters, especially about situations that might arise in the future. This time the government wants to ensure that there is clarity about all the likely contingencies and it is also open to suggestions from the industry. "The government is also likely to provide clarity on these terms around the time the bidding process begins," said one of the sources. "The expression of interest (EoI) is likely to be issued (in) middle or late November."

The government may also float a proposal to shield any buyer from having to bear the cost of health coverage for current and past employees. The national carrier has a total debt of about Rs 59,000 crore but the special purpose vehicle (SPV) of Air India Asset Holding Limited (AIAHL) has taken over much of the non-core operation debt. AIAHL has raised about Rs 7,000 crore from the market to meet debt servicing requirements. The government may pass on less than Rs 10,000 crore debt to the future owner of the airline, according to some reports.

Finance Minister Nirmala Sitharaman proposed in the Union Budget 2019 to raise Rs 1.05 lakh crores through the divestment route in this financial year. Apart from that, the government needs to raise another Rs 1.45 lakh crores that it would lose from sweeping corporate tax cuts that Sitharaman has announced for kickstarting the economic revival if the runaway fiscal deficit is to be contained.