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Published on: Sept. 6, 2021, 4:08 p.m.
Sugar-coating the deal
  • The template of the Air India process will be followed for other PSUs

By Rakesh Joshi. Executive Editor, Business India

Fearing that unrest among trade unions could derail the process of privatisation, the Modi  government has agreed to  the main demands of Air India employees of bearing the cost of liquidation loss on account of transfer to the Employees' Provident Fund Organisation (EPFO) from company-owned trusts, inclusion of employees in the Central government health scheme (CGHS), and encashment of leave.

With Tata Sons consolidating its position as the front runner to take over the national carrier, the government is keen that no untoward development derails the process at this stage. The process of disinvestment has reached the third stage, with the bidders completing the due diligence process. The Tatas have appointed Bain & Company and Seabury Group for the process.

If all goes as planned, the financial bidding will start by the second week of September. The selected financial bids will have to be approved by a committee of secretaries and then the ministerial panel. There may be a requirement to take approval from the Central Vigilance Commission if the government receives only a single bid. The Department of Investment and Public Asset Management is hopeful of concluding the sale by the end of this financial year.

The template of the Air India process will now be followed for other public sector undertakings, up for privatisation at a later date.  The group of ministers led by Home Minister Amit Shah has decided to release budgetary support to meet the demands if the total outgo, which is projected to be around Rs250 crore, crosses the figure. 

The eight employees unions of Air India have been urging the government to iron out the kinks in matters concerning human resources, including provident fund (PF), medical, and other welfare benefits. Air India has 16,077 employees, of which 9,617 are permanent, entitled to gratuity and other benefits.

The issue over PF arose after the airline management decided to transfer PF accounts to the EPFO before transferring ownership of the airline. However, the process requires premature liquidation of securities held by trusts, which would have resulted in either surplus or shortfall in the corpus – depending upon prevailing market conditions. Both trusts have already incurred significant losses in their corpus due to investments in bankrupt companies, such as Infrastructure Leasing & Financial Services and Dewan Housing Finance Corporation.

In case of a shortfall in liquidation value of the investment of the existing PF trusts, it would be adjusted by the government – if needed – through budgetary support. As part of the share transfer agreement, the government will mandate that the new owners of Air India will have to take on the liabilities against gratuity of employees, who retire after the privatisation of the airline. "Gratuity is a statutory payment. In all mergers and acquisitions, gratuity is taken care of. It will not be a burden since it will be 0.5 per cent of the company's total revenue," says an official.

Similarly, another primary demand by employees seeking continuance of medical benefits has been given in-principle approval as well. The Ministry of Civil Aviation (MoCA) is currently engaged in talks with the CGHS officials in this connection. Under CGHS, deduction is made from the salary, which depends upon the pay grade of the serving employee. “In order to provide medical benefits to retired and retiring Air India beneficiaries by the government, provision of these benefits through CGHS would be explored. The share purchase agreement should clearly indicate that this liability will not be borne by the company after disinvestment,” according to an order issued by the MoCA.

The ministerial panel has asked the Air India management to calculate the amount to be paid with regard to encashment of leave. Air India employees are entitled to encashment of 300 days leave.

Concurrently, the panel has also accepted that employees may be allowed to stay in the residential colonies for six months after the sale. There are multiple residential colonies built for Air India staff – the largest of which is in New Delhi's Vasant Vihar. These housing properties are not part of the sale and will be monetised to service debt of around Rs30,000 crore, which the government has hived off into a special purpose vehicle to sweeten the deal for bidders.

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