What is the issue?
- The government’s attempt to privatise the loss making Air India (AI) is not materialising.
- Resolving it through the new Insolvency and Bankruptcy Code could be a better option.
What is going on with AI?
- The airline is behind on its payments to several of its creditors.
- These include both operational creditors, such as aircraft lessors, and financial creditors, such as banks.
- Debts have been piling up for at least two months in both cases.
- The aircraft lessors have declared that an “event of default” has occurred.
- This may mean that they begin proceedings to take back the leased aircraft.
- This would leave AI with a huge drawback in its schedule and place it in even more trouble.
- On the other hand, the RBI has been quite firm on not covering up bad loans any further.
- So if AI misses payments for 3 months, then the banks might be entitled to declare its account a non-performing asset.
What next?
- In the last financial year (2017-18), the government committed to releasing Rs 18 billion.
- This was, reportedly, to allow the airline to deal with its accumulated losses.
- But only Rs 6.5 billion of that amount was released.
- AI is assuring its creditors to pay back, but the government may not release any more of the money.
- This is because the creditors, concerned with NPA, could possibly move the AI case to the National Company Law Tribunal.
- The AI account might be subjected to the process and principles of the Insolvency and Bankruptcy Code (IBC).
- If this happens, the privatisation of AI might move forward purely through the application of law.
- In this case, the committee of creditors could take the decisions that the government, as primary owner, is unwilling to take.
- This would be favourable from the taxpayer’s point of view, as it prevents the impact of the AI loss on taxpayers money by being under the government.
Source: Business Standard
