The fact that Air India is in a mess is universally known. Unable to get the airline out of this mess is what forced the Government to put it on the block. But recent disclosures by the civil aviation ministry suggest that the sale of the airline’s stake will come with several disclaimers. Those who still want to bid for it will have to do so at their own risk.

Disclosure A: Air India’s losses for FY17 are much higher than what was declared earlier. It is, in fact, higher by about ₹2,000 crore or more than 50 per cent from the previously disclosed figure of ₹3,728 crore.

Disclosure B: The airline’s debt, according to the civil aviation minister himself, is about ₹70,000 crore which is about ₹20,000 crore more than what was assumed earlier.

A familiar scenario

The new revelations in some ways mirror the post-buyout scenario that emerged after the UK-based liquor-maker, Diageo, bought Vijay Mallya’s United Spirits in 2012. Later, Diageo’s auditors found out that the Indian company had defaulted on payment to its vendors and distributors not to mention lenders, and some part of the profits had even been diverted to run Kingfisher Airlines. USL under its new owners was then forced to make provisions for it in its account books.

By 2017, more irregularities came to the surface after an international investigation named Paradise Papers revealed that between 2008 and 2014, USL’s overseas subsidiaries were used for laundering ₹10,000 crore raised as debt.If one were to add up the two including the value of acquisition of ₹18,000 crore for a 55 per cent stake in USL, then the total amount would be around ₹28,000 crore, which clearly shows that Diageo might have got hold of USL at a price which must have left its board members red-faced.

One could right away argue that proper due diligence was not carried out before buying United Spirits. This acquisition could have been because Diageo was bent upon acquiring United Spirits which gives the company nearly 50 per cent share in the fastest and largest liquor market in the world.

Similar story

The same could be said of potential bidders for the Indian flag carrier, whose acquisition will give the new owners a dominant position in the market and, with the Government as a partner, easier access to several more markets. But at what cost? What if there are more horror stories in Air India that haven’t come to the surface yet, more money that needs to be paid to vendors, contracts which are irrevocable which benefit the other party more than the airline?

Add to this the effort it will take the management to keep happy hundreds of MPs, armed with 34 flight tickets every year.

Though the acquisition terms are still not known, the management will be under the watch of a parliamentary panel and may be forced to disclose certain aspects to Parliament which are better kept secret. At a recent investors’ call, IndiGo, which was the first to show interest in buying into Air India, admitted that joint ownership with the Government would be a difficult proposition.

Considering the pitfalls ahead, it is obvious that only the brave would want to venture to buy a stake in Air India. But those who do should put a premium on transparency and insist on including a clause in the contract that the Government will be the one who picks up the bill and takes responsibility for liabilities that might arise after the airline’s stake has been bought.

As of now, the Government has ticked all the right boxes about the divestment by allowing even foreign airlines to pick up to 49 per cent stake in Air India. But that is not good enough. It has to ring-fence the airline from any disruptions caused by external factors .

More than anything else, the Government might get the money it asks for if it decides to exit the airline completely. That might seem improbable now, but it is the only way to rescue Air India.