Air India returns to Tatas after group puts in winning bid of Rs 18,000 cr

Airline will return to Tatas after 68 years; first privatisation move in two decades

More than three years after it failed to get even a single bid for Air India, the government on Friday announced the sale of the national carrier to the salt-to-software conglomerate Tata Group at an enterprise value of Rs 18,000 crore. This is the first major privatisation step in about two decades.
 

With this, Air India will return to the Tatas after 68 years. Along with the brand and the slots of the debt-ridden state-owned airline, the Tatas will get the low-cost subsidiary Air India Express and a 50 per cent stake in ground handling firm AISATS.

Of the bid amount of Rs 18,000 crore, the Tatas will pay Rs 2,700 crore in cash, while taking the remaining Rs 15,300 crore as debt.

The group will also have to pay around Rs 9,185 crore on account of capitalised lease obligations of 42 leased aircraft, primarily the Boeing 787 Dreamliner aircraft. Apart from Air India's 12,000-odd employees who have to be retained during the first year of operation, the Tatas will have to ensure business continuity.

The new owner can’t transfer the Air India logos—there are eight—at least for five years. After that, these can be transferred only to an Indian entity.

The second contestant, the consortium led by SpiceJet Chairman Ajay Singh, placed a bid of Rs 15,100 crore, of which Rs 12,835 crore will be the debt to be retained, and Rs 2,265 crore would have been the payment in cash. The reserve price for the airline was set by the government at Rs 12,906 crore.
 

In what experts termed a win-win transaction, Tata Sons, which operates two airlines Vistara and AirAsia India, will become the second-largest airline in domestic market with around a 25 per cent market share while becoming the largest Indian airline on international routes. 

Sources said the Tatas planned to integrate Air India’s operations with Vistara to build an international premium airline while Air India Express would be merged with AirAsia India to straddle the low-cost space.

The airline has 4,486 domestic and 2,738 international slots across Indian and major international airports.

“The first initial step will be to do a significant restructuring of the network where Vistara, AirAsia India, Air India Express, and Air India don’t cannibalise each other and cross-sell tickets on each other’s platform and on the super app that the group is planning. We may see some changes in network optimisation from the winter schedule itself,” said a person in the know of things

The government, which has invested Rs 54,584 crore since 2009-10 as cash support and Rs 55,692 crore as guarantee support for Air India, has not succeeded in turning around the company. An estimate by the government said it would cost the government Rs 620 crore per month to operate the airline, which is losing Rs 20 crore daily, said Department of Investment and Public Asset Management Secretary Tuhin Kanta Pandey.

Ratan Tata, chairman emeritus of Tata Sons, said: “The Tata Group winning the bid for Air India is great news! While admittedly it will take considerable effort to rebuild Air India, it will hopefully provide a very strong market opportunity to the Tata Group’s presence in the Aviation industry.”

Tata Sons Chairman N Chandrasekaran said: “This is a historic moment, and it will be a rare privilege for our Group to own and operate the country’s flag bearer airline. It’ll be our endeavour to build a world-class airline which makes every Indian proud.”

Ever since Air India’s disinvestment process started in 2020, the pandemic ravaged the aviation business, ballooning Air India’s debt to Rs 61,562 crore. Even after disinvestment, the government will have to service Rs 46,262 crore of debt and Rs 15,834 crore of current liabilities like accumulated airport charges and vendor payments which would be transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle set up to transfer Air India’s debt.

After netting the value of non-core assets worth around Rs 14,718 crore and Rs 2,700 crore of cash from Tatas which will be transferred to AIAHL, the impact on government finances after transferring excess liabilities would be around Rs 44,679 crore, said Pandey.

“AIAHL will raise money through government guaranteed bonds and pay off lenders, or the government will ask the lenders to novate the guarantee to AIAHL as most of these loans are not backed by assets, especially aircraft,” he said.

In 2019, AIAHL mopped up Rs 21,985 crore by way of bond issues to repay debt that was transferred.

For the Tatas, it will be a formidable challenge to turn around the airline.

“Air India, despite having an envious fleet, has been reporting losses primarily due to operational inefficiencies and huge debt. India is the fastest-growing aviation market poised for a strong recovery in the post-Covid times. Tata Group, with its experience in Vistara and AirAsia, is expected to bring in efficiency and cost optimisation, which will help in cutting down the losses,” said Vipula Sharma, director (ratings) and head (infrastructure rating), Brickwork Ratings.