NEW YORK (TIP): Air India has been sued for over $1.2 billion as part of an ongoing dispute between the Indian government and an energy firm. Cairn Energy plans to seize Air India assets in the US to enforce a tax dispute it recently won.

According to Reuters, Cairn Energy has sued Air India to enforce its $1.2 billion tax dispute arbitration victory. The case was filed before the US District Court for the Southern District of New York to make the flag carrier liable for the $1.2bn settlement.

This isn’t the first time Cairn has threatened to seize Air India’s assets. Back in February, the flag carrier began making preparations to avoid losing its aircraft in a legal dispute. However, it seems that the company is pursuing its legal claims against the airline for now.

The argument underpinning this latest case is that Air India is “legally indistinct from the state itself.” This means that the flag carrier can be held liable for the tax judgment and hence open to seizures by the company.

While there is a distinction between the Indian government and Air India, Cairn argues this is a mere technicality since the government wholly owns the airline. They also argue that this technicality only exists to prevent creditors from pursuing the airline.

This situation first arose in December 2020, when the International Court of Justice sided with Cairn in a long-standing tax dispute. This opened the door for the energy company to pursue any Indian asset abroad to fulfill the $1.2 billion award.

Airlines are a popular choice for groups looking for foreign assets to seize. Since aircraft can cost hundreds of millions, they are favorable assets to acquire in disputes. In January, a Pakistan International Airlines 777 was seized in Kuala Lumpur due to unpaid dues. The gambit worked, with PIA reaching an agreement with the lessor in two weeks.

This latest legal filing could be a negotiating tactic to pressure Indian authorities into moving faster on reaching an agreement with Cairn. The image of a company seizing government assets would be a huge blow to the nation’s image and hamper Air India’s operations. Both sides are currently in talks to settle the dispute with minimal noise.

The current legal dispute could even impact Air India’s privatization process. The uncertainty could spook bidders and drive down the price of the airline. Considering how critical this divestment is to the government, expect a relatively speedy resolution to this conflict.

The coming months will tell us more about if Air India’s assets are indeed in danger abroad. Cairn has filed cases in the UK, Netherlands, Canada, and other countries, threatening a vast swath of the airline’s 787s and 777s. For now, keep an eye on this developing situation.