The Tata Group will effectively take on a fourth of Air India's total debt and has to hold on to at least 51% of the carrier for a year and keep 12,000 of the carrier's employees, also for a year, as part of privatisation conditions. It will also stick to a business continuity clause for three years and retain the brand for five years as part of the deal.

Talace Pvt Ltd, a unit of the automobile-to-aviation conglomerate, Friday won the bid for Air India and its subsidiary Air India Express. The total bid amount based on the enterprise value is Rs 18,000 crore. Of that, Rs 15,300 crore is the debt that's being acquired while the remaining Rs 2,700 crore will be cash paid to the government.

The reserve price had been set by the government at Rs 12,906 crore. "The reserve price was calculated as a weighted average of the business valuation and asset valuation," said Tuhin Kanta Pandey, secretary, department of investment and public asset management (DIPAM).
Air India's debt was Rs 61,562 crore on August 31, primarily raised on sovereign guarantees to fund its losses. The airline's accumulated losses at the end of March stood at Rs 83,916 crore. After the deal, the larger part of the debt and assets will be transferred to a special purpose vehicle known as Air India Asset Holdings Ltd.

Pandey said the debt that the government is taking on will be retired. Lenders will not have to face a haircut as they are protected by sovereign guarantees.The assets will eventually be monetised.

Limitations on What AI Can do Till Takeover
The company will bear a daily loss of Rs 20 crore, which will also be absorbed by taxpayers, until it's transferred at the end of December.

"In the bid process, we have provided that when the CP (condition precedent) closure is reached, that day we will issue a latest balance sheet incorporating this (Rs 20 crore daily loss)," Pandey said. "Our construct is that net current liabilities have to be zero. There is business of the company, for example buying fuel - they are taking money or giving off money also."

In case of any queries over the balance sheet, it can be raised with a chartered accountancy firm from among those that have been agreed upon.

"We will select one firm and they can refer their issue to that firm," Pandey said. "This CA firm will give final determination that would be final, which we will accept and they will also have to. We have already given this comfort. We have provided all these details in the bidding agreement. They are taking this risk of any additional expenditure.

There are limitations on what Air India can do in the period before Tata takes over, restricting it to normal business activities.

"They can't make any capital commitment or give out large contracts," Pandey said. "They can't make an expenditure of over Rs 50 crore. Current management will have to carry out a consultation with the new buyer for any other commitment that it wishes to make so Air India does not put any additional liabilities on them. We have also committed to a certain number of aircraft in airworthy condition on the date of the transfer. We have said 58 aircraft of A320 family are in airworthy condition."