Air India divestment: Govt plans to create ESOP from its own stake, says Jayant Sinha

The government is planning to create an employee stock ownership plan (ESOP) from its own stake in Air India (AI), Minister of State for Civil Aviation Jayant Sinha said in an interview to CNBC TV18.  

Earlier on Wednesday, the government had announced its plan to sell 76 percent stake in Air India in a preliminary information memorandum released on strategic disinvestment of the national carrier.

Once the ESOP pool is created for its employees, the government stake may fall below 20 percent, Sinha said, adding that the move would give employees a chance to take part in the future growth of Air India.

Speaking about Air India's employees, Sinha said that a consultation process with respect to their protection is currently underway.

The government promised in its memorandum to pay any pending wages to the airline's employees. Sinha said that the government is currently considering the possibility of retaining its employees, even after the share sale.

On the plan to divest stake in Air India, Sinha said the government will be absorbing some debt in a holding company that will be created for the purpose.

Over Rs 24,576 crore of interest-bearing debt will be transferred to the new Air India, while the remaining Rs 25,ooo crore will stay with the asset holding company.

Defending the government's move, Sinha said: "We want to participate in value creation which will be done by the new owners." The Minister of State for Civil Aviation added that the government will cede all control of the airline and keep only a residual stake.

Sinha also said that no central government in the world operates an airline and that handing Air India over to a professional team is necessary to restore its past glory, as well as to ensure its survival in a highly competitive world, which may not be possible within the government's framework.

"Government should focus on what the government does best and let the Maharaja soar in the professional hands," Sinha said.

The minister said that a consortium will need to have a net worth of at least Rs 5,000 crore if they want to bid for the airline. In case of domestic airlines with a negative net worth, the consortium's ownership will be restricted to 51 percent.

"Profitability requirement does not apply to domestic airlines," Sinha emphasised.

The minister also clarified that only operational core real assets will go to the new Air India and all non-core land assets will be transferred to a special purpose vehicle (SPV).

Also, the non-core real estate will be sold off to repay the debt that remains on the books of the holding company.

The money that was pumped in Air India earlier would be used for public welfare sectors like healthcare and farmers, Sinha said.

He added that the government hopes to complete the divestment exercise in the current government's term. "We hope to award AI to the winning bidders by September, and close the transactions a few months later," Sinha said.

Stating the the government has the mandate of the people for this divestment, Sinha pointed out that it had been working day and night to improve Air India's operations.