Air India – a Prodigal Son or a Shravana for Tatas?
Why would Tatas want to be a lifejacket to a wrecked boat?
“Return of the prodigal son: Air India back in founder Tata fold after 68 years” – read headlines of Times of India on Oct 8, 2021.
The news of a buyout of Air India by Tata Group sparked more conversations than any other buyout in recent times. And why not? The airline has come back to the salt to software conglomerate after almost 7 decades gap. In a pandemic-stricken world, aviation was the worst hit segment. Why do you think Air India was an attractive deal for Tatas? Or anyone for that matter?
Is this really a return of the prodigal son? Or is this a Shravana that will lead its parent group to new heights? Was it just the emotional bent of Tatas that they placed a bid of whopping 18000 crore, beating SpiceJet's Ajay Sing who bid Rs 15,100 crore? Let’s dig deeper!
A brief peep into history
JRD Tata started Air India, then known as Tata Airlines, with an initial investment of Rs 2 lakh. The first planes purchased by the company were two second-hand de Havilland Puss Moths.
In 1947, as India gained Independence, the government bought 49% stake in AI. In 1953, the government bought the remaining stake, and AI was nationalized. For the next few decades, the national carrier dominated Indian skies. However, with economic liberalisation and the growing presence of private players, this dominance came under serious threat. Ideologically too, the government running an airline did not quite gel with the mantra of liberalisation.
Fun Fact: Tata got Rs 2.8 cr when Nehru govt took over Air India. Now group pays Rs 18,000 cr to buy it back!
After many failed attempts to sell the stake in airline, GoI was finally able to conclude the sale this time in 2021 due to two main reasons:
1. No Government stake this time. 100% of AI was put to sale to attract private investors.
2. Bidders decided the amount of debt they wanted to pick up instead of government deciding a certain amount of debt to be sold along with airlines. (Tatas picked up Rs 15,300 crore of debt from total debt of Rs 61,562 crore).
Fun fact: According to GoI, Air India currently loses 20 crore per day!
And Voila! A tender which did not attract even a single investor in last two attempts, got two handsome deals from Tatas and Spicejet!
What is in it for Tatas apart from the emotional ride?
Brands: Tatas will get ownership of Brands like Air India, Indian Airlines, and the Maharajah. Tata Group already owns about 84% stake in AirAsia India and 51% in Vistara.
Massive Fleet: Air India has a fleet of 117 wide-body and narrow body aircrafts and AIXL has a fleet of 24 narrow body aircrafts. The debt-laden carrier has 127 aircraft, controlling 50.64% of the International market share when clubbed with AIXL, among Indian carriers.
Apart from this, Tatas will also get control of the airline's 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas.
Assets: Air India owns millions of dollars’ worth of prime real estate. According to the aviation ministry, its fixed assets - land, buildings, planes - in March last year were worth more than 450bn rupees ($6bn). The airline also has more than 40,000 pieces of art and collectibles, including an ashtray(pic below) designed and gifted by Spanish surrealist artist Salvador Dali(yep! the same Dali mentioned in Money Heist).
Fun Fact: In return for the ashtray talked about above, the airline had gifted Dali a baby elephant, which was flown to Spain.
Massive Stake: Post-acquisition, the Tatas will own 100% stake not only in Air India but also 100% in its subsidiary Air India Express (a low-cost carrier airline that focusses on short-haul international operations especially in the Middle East market) and 50% in the joint venture Air India SATS (airport services on ground and cargo handling). As a part of the deal, Tata Sons will have to maintain at least 51% equity stake in Air India for a period of one year. Only after the completion of one year, Tatas can sell any stake in the airline.
Employee strength: The total permanent and contractual employee strength of Air India & AIXL is 13,500. As part of the deal with GoI, Tata Sons will have to retain all current employees of Air India for a one-year period. From the second year, Air India employees will have to be offered a VRS(Voluntary Resignation Scheme).
Looking at all the above factors, Air India doesn’t seem like a bad bet. Right? Yes, Tatas will have to pour in vast amounts of money to revive the debt-laden venture, but hey, Tatas are always in for the long term.
Moreover, with India seeing passenger growth of around 20% per year and analysts saying the Indian market is vastly underserved - Air India seems to be a good prospect for Tata Group! So, maybe Air India may in fact prove to be a Shravana after all! 😊
By: Anmol Gupta | Isha Garg