As the Indian government tries to sell off its ailing state carrier Air India, it faces numerous hurdles on the way. This sale is critical to help the government meet its 1.05 trillion rupees (US$15 billion) divestment target in the current financial year.

The hurdles include state-owned oil companies threatening to cut off fuel supplies over unpaid bills, the mass resignation of pilots on October 13 over salary delays and the proposed sale plan has hit roadblocks.

Oil companies have accused Air India of non-payment of fuel bills and the backlog now stands at 50 billion rupees ($699 million). They said the airline had failed to honor its earlier assurance to pay 1 billion rupees ($14 million) every month to clear the dues and threatened to stop supplies at major airports from Friday.

Sandeep Kumar Gupta, Director (Finance) at the Indian Oil Corp (IOC), told the Press Trust of India: “Air India had back in June and again in September agreed to pay the three oil marketing companies one billion rupees every month to clear past aviation turbine fuel dues. But unfortunately it hasn’t met its commitment.”

In August, the three oil companies stopped fuel supplies to Air India at six airports – Kochi, Mohali, Pune, Patna, Ranchi and Vizag – over payment defaults. Supplies were resumed last month after Air India committed to clear past dues.

The oil companies have so far not indicated the airports where supplies will be stopped, but this time they plan to do so at major ones.

Pilots on warpath

On October 13, the ailing airline was rocked by the mass resignation of 120 Airbus A-320 pilots. They said their grievances had been ignored for too long.

The pilots who quit were hired on contract for five years and paid low salaries. They were assured of increments and promotions as they gained experience, but those were not kept.

The Narendra Modi government has been trying to sell the airline for many years. It had earlier tried to sell a 75% stake, but had to call off the move for want of bidders.

Now it has decided to completely sell the airline, but it is saddled by liabilities of 700 billion rupees ($9.79 billion), as of March this year, which is deterring investors.

The government has now decided to make the ailing airline debt-free by taking more than 200 billion rupees ($2.80 billion) from its account books before offering it to bidders at the end of this month.

The government had earlier taken over 294 billion rupees ($4.11 billion) of debt from Air India.

After the last bidding fiasco, the government appointed Ernst & Young as the transaction adviser, which has now submitted a detailed report on why there were no takers last time. Those details will be factored in while going through the process.

The country’s second largest airline by market share, Jet Airways, promoted by businessman Naresh Goyal, was recently grounded due to huge losses and mounting debts. It is also struggling to find buyers.