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Air India sold Rs 1,300 cr plane to Ethiad for only Rs 427 cr; CAG questions national carrier

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By Newsgram Staff Writer

Comptroller and Auditor General (CAG), after being quite for a long time on Monday, questioned state-run carrier Air India for selling five Boeing 777s at a loss to Etihad in 2013.

The CAG has sought civil aviation ministry’s response on why this deal was allowed under the United Progressive Alliance government.

The CAG query addressed two aspects – one of selling the aircraft after six years of operation, when they were meant to be operated for 25 years; and the second of selling it at much lower than the cost price, The Economic Times reported.

Former comptroller and auditor general, Vinod Rai had earlier raised questions about Air India and Etihad deal for $350 million in his 2014 book ‘Not Just an Accountant’. In the book, he had mentioned, “Why did we make purchases and within five years of the delivery of the aircraft, sell them at roughly 427 crore each to Etihad Airways after having purchased them in 2005 for 1,300 crore per aircraft?”

Air India in its defense has said that the long-range planes were not not fuel efficient and were losing money on its overseas flights, including to US and Japan, according to Economic Times.

Etihad reportedly is currently using the aircraft to connect to Abu Dhabi to destinations in US. The long range Boeing 777-200-LR has a range of 17,370 km, allowing it to connect almost any city in the world from Etihad’s Abu Dhabi hub.

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AI’s divestment process takes-off, govt to off-load 76% stake

Currently, the combined entity of AI and AIXL has an extensive network connecting around 43 international destinations and around 54 domestic destinations

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The divestment process of the flag carrier Air India (AI) took-off, after the government invited “Expression of Interest” to off-load 76 per cent stake and management control of the airline.

The Preliminary Information Memorandum (PIM) inviting “EoI” for the strategic divestment of AI, along with the airline’s shares in AIXL (Air India Express) and AISATS (Air India SATS Airport Services) from private entities including the airline’s employees was issued on Wednesday. The central government owns 100 per cent equity of Air India. In turn, the airline holds full stake in Air India Express, while it holds 50 per cent stake in the joint venture AISATS.

The ill-fated flight IC-814 was destined to fly from Kathmandu to Delhi
Air India is going through major losses.

Accordingly, it has been planned to divest 76 per cent government stake in AI, 100 per cent in AIXL and 50 per cent in AISATS. “The Government of India has given ‘in-principle’ approval for the strategic disinvestment of AI by way of the transfer of management control and sale of 76 per cent equity share capital of AI held by GOI, which will include AI’s shareholding interest in the AIXL and AISATS,” said the PIM document.

The document detailed that apart from AIXL and AISAT, other subsidiaries of AI Group like AIESL (Air India Engineering Services Ltd), AIATSL (Air India Air Transport Services Ltd), HCI (Hotel Corporation of India) and AASL (Airline Allied Services Ltd), “will not be part of the proposed transaction”.

According to the memorandum, private entities should have a net worth of Rs 5,000 crore to be eligible to send in their EoIs for the proposed transaction. The entity is also required to have reported a positive profit after tax in at least three of the five preceding financial years.

“However, if the member of the consortium is a scheduled airline operator in India, the condition to meet minimum share of net worth/ACI requirement shall not apply to such member provided equity shareholding of such member is restricted to maximum of 51% of paid up equity share capital of the consortium,” the document said. “In case of a foreign airline, the requirement to meet minimum share of the Net Worth/ACI requirement shall remain applicable.”

Also Read: India becomes 3rd Largest Aviation Market in Domestic Passenger Traffic

On the debt restructuring, the PIM disclosed that the “existing debt and liabilities of AI and AIXL as on 31st March, 2017 are being reallocated and it is expected that debt and liabilities, including net current liabilities of Rs 88,160 million, aggregating to Rs 333,920 million will remain with AI and AIXL”.

“The balance debt shall be allocated to Air India Asset Holding Ltd which is 100 per cent owned by the GOI subject to receipt of requisite approvals from lenders and regulators, as applicable.”

Department of Investment and Public Asset Management (DIPAM) Secretary Neeraj Kumar Gupta said that non-core assets like buildings and others will be transferred to the SPV.

“Only the core assets which are essential for operation, they are being transferred with Air India. All non-core assets are being hived off to the SPV. It will be separately monetized,” he said.

Besides, the PIM had revealed that “Confirmed selected bidder” will be required to be invested in the airline for at least three years and keep the “substantial ownership and effective control” of both Air India and Air India Express vested with Indian nationals.

“It is the intention of GOI to divest its residual shareholding through the process of dispersed disinvestment (i.e. would not be sold as a block) on such terms as may be prescribed in the RFP,” the document read.

“Further, the confirmed selected bidder may be required to list AI on such terms as may be prescribed in the RFP. GOI may support such listing through proportionate offering in the listing process…”

The selected bidder will be allowed to use the “Air India” brand for AI business operations for a minimum specified number of years…” The last date of EoI submission has been set for May 14, 2018. Last month, Minister of State for Civil Aviation Jayant Sinha had said that the government plans to divest its stake in the national passenger carrier by this year-end.

In his Budget speech for 2018-19, Finance Minister Arun Jaitley had said: “The government has also initiated the process of strategic disinvestment in 24 Central Public Sector Enterprises. This includes strategic privatization of Air India.”

The airline is under a massive debt burden of over Rs 50,000 crore. Currently, the combined entity of AI and AIXL has an extensive network connecting around 43 international destinations and around 54 domestic destinations. The entity operated a fleet of 138 aircraft as of December 31, 2017 comprises 69 Airbus and 69 Boeing plans. IANS