Air India deal: Tatas back in the cockpit after decades of resistance

The group has been battling fierce opposition from other airlines and politicians since the 1990s

With the government announcing that the Tatas will eventually be the new owners of Air India, the move will mark the culmination of their long journey to get back in the pilot seat of an airline which was originally set up by J R D Tata as ‘Tata Airlines’ until it was nationalised in 1953.

The Tatas made their first abortive attempt to get back in the airline business in the 1990s when they set up an airline with Singapore Airlines. The move was initiated by then prime minister P V Narasimha Rao as part of his ‘Look East’ policy. Rao asked his principal secretary, Amar Nath Verma, to get the Tatas on board. Verma called Ratan Tata, chairman at the time, and he responded positively.    

But the Tatas were blocked by vehement opposition from India’s fledging domestic private carriers who feared they would be pushed out of the game (together they had 25 planes) if a big player such as the Tatas, (which alone was planning 16 planes), entered the fray.  

The United Front government under H D Deva Gowda was cool to the idea of the Tatas’ tying up with Singapore Airlines to bid for Air India. In 1996, no less than the aviation minister C M Ibrahim said he opposed the Tata-Singapore Airlines venture on ideological grounds. The government disallowed foreign investment in the airlines sector.  

But the Tatas did not give up. When the National Democratic Alliance government under Atal Bihari Vajpayee came to power in 1998, one of its biggest planks was to sell its stake in state-owned enterprises.

In 2001, the government sounded out the Tatas to participate in the disinvestment in Air India. The government had decided to sell 40 per cent. The buyer could get a foreign partner but it could have only up to a 26 per cent stake. The rest would be with employees (10 per cent) and the balance would be sold to financial institutions or in the share market.

The Tatas went back to Singapore Airlines and sought its technical help and asked it to be a partner in the bidding process. Singapore Airlines’ top executives conducted a detailed study and concluded that Air India had robust mid-level managers and, with control, the airline could be turned around easily.

It was believed Singapore Airlines would take less than 20 per cent in the airline if things worked out. But the old story was repeated again. This time around, it was not only the rival airlines, especially Naresh Goyal of Jet Airways, which lobbied against the move but Air India’s  trade unions also opposed it as they were uncertain of their future.

The opposition joined the chorus. Nearly 40 MPs wrote letters opposing the disinvestment. Senior leaders cutting across party lines said Air India should not be privatised. Even the parliamentary standing committee on the subject had serious reservations about the government selling its stake and about allowing foreign investors to take a minority stake.

Members of the committee urged the government to highlight the positive aspects of the airline so that strategic investors would come with lucrative offers. Matters came to a head when a letter, purportedly written by a top government official in the Prime Minister's Office opposing the sale, began doing the rounds.

The only other bidder who had shown some interest, the Hindujas,  decided to withdraw lest the controversy about their Bofors links might  disqualify them.  

But the mounting opposition prompted Singapore Airlines to pull out of the venture with the Tatas, say sources who were involved in the deal.

Singapore Airlines later said in a statement that it had been taken aback at the intensity of the opposition to the privatisation of Air India not just from one quarter but from so many, including political groups, trade unions, and even the media.

Those involved in the decision-making process at the time suggest that Singapore Airlines was also wary of political interference in the management of Air India, given that the government would still control the airline.

Many observers pointed out that, despite disinvestment minister Arun Shourie pushing the move, the Tatas were unable to confront the opposition. Shourie acknowledged that the vociferous opposition was a ‘’substantial setback’ and blamed the opposition for scaring away bidders.

The Tatas stepped back. Ishaat Hussain, then director, finance, Tata Sons, informed the government that the company was pulling out of the bid owing to the ‘adverse climate’ and its failure to find a suitable partner once Singapore Airlines’ had withdrawn.

And here they are now, back in the cockpit.