The Union government is selling the national carrier Air India to Tata Sons for Rs18,000 crore, department of investment and public asset management (DIPAM) secretary Tuhin Kanta Pandey announced this afternoon.. This puts an end to the prolonged attempts to sell and turnaround the airline by various governments over the past decade. The deal allows the Tata group to reclaim authority over Air India after 68 years. Tata group's acquisition of Air India has been in the news for the past one week. Chairman Emeritus of Tata Sons, Ratan Tata greeted the news with a tweet that said, “Welcome Back, Air India” with an old photograph of the legendry JRD Tata getting down from an Air India aircraft.
Things have some a full circle for the group, since the sudden nationalisation of Air India, then considered among the best airlines in the world, had left JRD Tata heartbroken and he was offered chairmanship of the airline as a consolation by then prime minsiter Indira Gandhi.
The Air India Specific Alternative Mechanism (AISAM), headed by Union home minister Amit Shah has cleared the proposal to sell the airline to Tata Sons. AISAM has the finance minister, commerce minister and aviation minister as members.
Tata Sons and Ajay Singh (chairman of SpiceJet) in his personal capacity, were the only two entities in fray to buy the beleaguered airline. Reserve price for Air India was set by the government at Rs12,906 crore.
The sale is expected to be at an enterprise value of Rs18,000 crore, out of which Rs15,300 crore would be the debt retained by the winning bidder. According to the bid terms, Tata Sons will pay Rs2,700 crore in cash.
The government had tried to auction its majority stake almost three years ago, but it drew no bids, forcing the government to ease the terms. With the arrival of the COVID-19 pandemic, the government also ended up extending the deadline for bids many times.
The final Air India sale process started early last year and is now finally getting consummated. With this, there is now a fresh revival of hope for the airline, which has been making losses every year since its merger with Indian Airlines in 2007.
As of March 2020, Air India's losses amounted to Rs70,820 crore.
However, the most interesting part about the Tatas’ successful bid for Air India is that the conglomerate—which is one of India's oldest—had ventured into aviation in 1932 with Tata Airlines, which later on became Air India. After the nationalisation in 1953, Air India went to the government, but the Tatas were in the driving seat till as late as 1977.
For long, the airline has been regarded as a loss-making entity but it does have assets. The winning bidder will get 100% stake in its subsidiary Air India Express and its 50% stake in AISATS— the ground handling company, the second largest air fleet in the country, lucrative bilateral routes, slots, and more.
The two airlines have a fleet of 144 aircraft as per data released by the ministry of civil aviation. This does not include the four 4 B747s which are supposed to be transferred on the books of Alliance Air which will remain with the government.
Air India operated 2,712 departures in November 2019 and currently is the second largest player at Delhi—the largest airport in the country by air traffic as well as departures.
With the international network, Air India holds 2,738 slots across 42 destinations which include some of the most congested airports like London Heathrow, New York JFK, Singapore Changi and Hong Kong.
Air India Express holds 651 weekly slots which include those at congested airports like Singapore and Dubai.
Air India has deals in place with Mumbai and Delhi airports for land parcels which host simulators, among other things.
While the land parcels will not be transferred to the new owner, the new owner can continue with the simulator and office space—subject to separate deals. With both cities being expensive to operate, having such a facility in the vicinity of the airport is a big plus.
AISATS also has its own building on a leasehold land in Bengaluru—which is fast emerging as a third hub in the country with potential to beat Mumbai as second busiest domestic airport.
Air India’s debt of Rs46,262 crore would be transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle set up to transfer Air India’s debt. The transaction will not include non-core assets including land and building valued at Rs14,718 crore, which will be transferred to AIAHL.
In January 2020, when the Air India preliminary information memorandum (PIM) was floated, the airline industry in India was on an upswing. New highs were recorded each month in terms of traffic, fleet induction, and airport expansion.
Fast forward to October 2021 when the Air India sale is getting completed, and the picture has changed dramatically. Governments are bailing out airlines across the world and the chances of any larger carrier investing in Air India have been diminishing with each passing month.
It is learnt that the second bidder, consortium led by SpiceJet chairman Ajay Singh, had placed a bid (in his personal capacity) of Rs15,100 crore, out of which Rs12,835 crore would be the debt to be retained and Rs2,265 crore would have been the payment in cash.
Earlier Dr Subramanian Swamy had pointed out how the second required bidder Ajay Singh (SpiceJet) had told the high court that he has no money to spend to save SpiceJet. Mr Swamy had contended that this disqualifies him from bidding for Air India and, hence, the bid process is null and void.
In recent years, Air India’s performance metrics worsened, delays and flight cancellations mounted, and fliers moved increasingly towards the low-cost carriers. Air India has a hub & spoke model (connecting smaller stations to hubs and thus offering better connectivity) while the low-cost carriers operate point-to-point.
But despite better connectivity, a generous baggage allowance, meals on board and wide international connectivity, the already shabby brand image took a severe beating. Air India has nearly always topped the charts in consumer complaints and compensation paid for delayed/cancelled domestic flights. Last year, reports of a rat on board a local flight, which had to be cancelled, aggravated the tatty image.
Branding experts say that customers will expect nothing less than world-class performance which the Tatas have already demonstrated at the Taj Hotels which enjoy a reputation for best-in-class hospitality.
Life has come full circle for the iconic Maharajah—the jovial, rotund inimitable mascot for the Air India. The Maharajah with his trademark twirly moustache and quintessentially Indian turban is going back to the Tatas. The Tatas already have two airlines in its kitty—Vistara and AirAsia but they are running losses there.