Thanks to Tata Group, Air India finally gets their old pilot back

 

Struggle to find a buyer comes to an end

1)     Air India arrived in Tata Sons’ cockpit after relentless struggle by Indian Government spanning two decades to find a suitable buyer for distressed airline. For strategic disinvestment, the Government had reserved the ask price to be around 12,906 crores. Tata Sons bid price came to be around INR 18,000 crore, successful overpowering the bid by SpiceJet’s Ajay Singh for INR 15,100 crore.

2)     Tata Sons will now have 100% ownership in Air India along with complete stake in Air India Express (Air India’s international low-cost arm) and 50% stake in the ground handling joint venture. Further, Tata Sons will also own brands like Indian Airlines and Maharajah.

3)     Of INR 18,000 crores bid by Tata, 15,300 crores will be Air India’s debt component taken by Tata. Remaining 2,700 will be the cash paid to the government. 44,000 crores of remaining debt in Air India will be transferred to a special-purpose vehicle (SPV)

The Timeline

1)     The airline was bleeding cash since its merger with Indian airlines back in 2007 amounting to loss of INR 20 crore per day. With this, gradually, Air India started reeling under a mountain of debt amounting to INR 60,000 crore (2020)

2)     In 2019, Indian Government issued a de-facto approval for creation of SPV named Air India Assets Holding Ltd. Furthermore, they had decided to transfer the INR 29,464 crore of total 43,000 crore debt (2019) to the SPV. This led to 90% of total debt being government-guaranteed.

3)     Air India faced enormous turbulence since the initial decision by government to opt for a stake sale. In 2000, NDA Government led by Atal Bihari Vajpayee tried to sell a minority stake of 40%. However, rising resistance for privatization by trade unions led to this plan coming to an abrupt halt.

4)     Eventually, NDA Government hiked the stake sale to 76% in 2018 and to 100% in 2020, further inviting expression of interest from potential bidders

5)     Furthermore, in October 2020, Government relaxed limitations for buyers, providing them the discretion to fix the amount of Air India’s debt they wanted to absorb.

Way forward for Air India

1)     Currently, Tata Sons will own 84% share in Air Asia (Market share: 5.2%) and 51% ownership in Vistara (Market share: 8.3%). Combined with Air India’s market share of 13.2%, Tata can have strong strategic position in India’s airline industry with 27% market share, second in position to Indigo

2)     Tata Group will further seek to implement few measures in the airline including debt refinancing, negotiating high-cost vendor contracts, refurbish old aircrafts and set up an able leadership team to give Air India a strategic pathway. Tata Group has brought in TCS as technology partner to remodel the technological capabilities.

3)     However, concerns are still looming with Air India staff with respect to salary arrears, salary cuts and staff accommodations. Now, it’s for us to see the Tata Group’s response to these apprehensions.

* The opinions expressed in the article are personal and do not represent the opinions of the organization I work for *