Tata Sons is the front runner to take over the national carrier, which has accumulated losses of over Rs 70,000 crore till March 31, 2020.
The central government has agreed in-principle to Air India employees' main demands.
It fears an industrial dissension now could impede the process of privatisation.
It has agreed to bear 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 leaves.
The template of the Air India process will be followed for other public sector undertakings up for privatisation at a later date.
“The ministerial panel on Air India has agreed to most demands.
"If required, budgetary support will be provided before transfer of ownership takes place,” said a government official involved in the process.
Home Minister Amit Shah-led Group of Ministers met recently and decided to release budgetary support to meet the demands.
Sources said the total outgo is projected to be around Rs 250 crore.
These issues had been snowballing. Had some employees moved court, that could have thrown a spanner in the works.
The government, in fact, is looking to conclude the sale process by the end of this year, said Department of Investment and Public Asset Management Secretary Tuhin Kanta Pandey.
Air India’s eight employee unions have been urging the government to iron out the kinks in matters concerning human resources, including provident fund (PF), medical, and other welfare benefits.
Reports said the Tatas were already concerned over the lawsuit filed against the company by Scottish energy company Cairn Plc and have sought an indemnity clause in the share purchase agreement.
Air India has 16,077 employees, of which 9,617 are permanent, entitled to gratuity and other benefits.
The government has put 100 per cent stake of the airline on the block, including its low-cost international subsidiary Air India Express and 50 per cent in the ground-handling subsidiary Air India SATS.
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, said sources.
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," said the official quoted earlier.
Similarly, another primary demand by employees seeking continuance of medical benefits has been given in-principle approval as well.
Sources said the ministry of civil aviation (MoCA) has resumed talks with the CGHS officials.
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 divestment,” read an order issued by the MoCA and reviewed by Business Standard.
The ministerial panel, said sources, 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 divestment.
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 Rs 30,000 crore, which the government has hived off into a special purpose vehicle to sweeten the deal for bidders.
The process of divestment has reached the third stage, with the bidders completing the due diligence process.
he Tatas had appointed Bain & Company and Seabury Group for the process.
Government officials said 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.
Tata Sons is the front runner to take over the national carrier, which has accumulated losses of over Rs 70,000 crore till March 31, 2020.
Photograph: Amit Dave/Reuters
