India plans to sell 76 percent stake in Air India even as debt and employee benefits could become a deal-breaker in the government’s efforts to privatise the struggling carrier.
Chance To Reduce Future Tax Outgo
A buyer of Air India will also get close to Rs 31,806 crore of unabsorbed depreciation, according to the document. That may provide “benefit of reduced tax liability going forward”.
Unabsorbed depreciation is what couldn’t be claimed as expenditure in profit and loss account due to lack of sufficient income. It can be carried forward for any number of years. The company buying stake in Air India can offset its profits against the unabsorbed depreciation, reducing the tax liability. The benefit will be available as long as Air India stays as a separate entity.
What A Buyer Won't Get
No Guarantee On Debt
A large part of the carrier’s debt is guaranteed by the government. In addition, it also guaranteed aircraft lease rentals for 21 Boeing 787-8 aircraft.
A bidder won't get this guarantee.
A government guarantee allows the airline to borrow at lower rate of interest, which is crucial given that it has been making losses for the past five years. Air India paid Rs 4,236 crore in financial costs in 12 months to March 2017.
No Land, Artefacts
The government proposes to transfer over Rs 21,000 crore of debt to Air India Asset Holding Ltd., a special purpose vehicle that that will look to raise money through divestment of the non-core assets like land and properties, and art and artefact. The buyer won't get these assets.
Who’s Eligible To Bid
A bidder should have a net worth of over Rs 5,000 crore and profits in three out of the last five years of operations. There is a concession of Indian carriers servicing the domestic market. They are exempted from the condition as long as they hold at least 51 percent in the consortium and its partners adhere to the net worth requirement.
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