What will be the task ahead for Tatas to get Air India soaring again?

The Maharaja will offer the Tatas interesting opportunities to build synergy, but first, it could end up costing them above 40 per cent of its enterprise value just to get things off the ground.

Informed sources have told Business Standard that the Tatas may have to invest over 1 billion dollars to upgrade and refurbish Air India’s fleet and improve its passenger reservation system.  

According to sources, the first three tasks will be refinancing Air India's existing loans, upgrading its aircraft gradually, and rewriting the various business contracts with suppliers and vendors.

Let's get into the details. One of the immediate focus areas would be to rewrite the agreements with lessors.

Additionally, the Tatas will have to refinance the 15,300 crore rupees worth of Air India’s debt which they have taken over.

While Air India has 141 aircraft, it will hand over only 118 in a fly-worthy condition to the group.

From engines to the landing gear and even the inflight entertainment system, there are many fleet upgrade and maintenance costs ahead.  

While the government had set a reserve price of Rs 12,906 crore for India, the Tatas’ winning bid was worth Rs 18,000 crore. Of this, the Tatas are paying Rs 2,700 crore for the acquisition, and take over Rs 15,300 crore of the airline’s debt. Separately, the Tatas will have to pay around Rs 9,185 cr on account of capitalised lease obligation of 42 leased aircraft.

The Tata group hasn't decided yet on how it will integrate Air India with its existing airlines – Vistara and AirAsia India. A source in the know told Business Standard that a decision in this regard was some time away. In particular, integrating with Vistara would take time as that would require permission from Singapore Airlines.

Clearly, the Tatas will have to put in a lot of money and energy into ensuring that the flight ahead isn't turbulent.  

“They will have to do 100 things to stabilise the airline and will have to put in a lot of money,” DIPAM Secretary Tuhin Kanta Pandey told Business Standard.

However, with the many challenges come new opportunities, too. Air India's acquisition will allow various Tata group firms – from TCS to the soon-to-be launched super app, TataNeu – to sell their products to the airline.  

Tata Capital and Indian Hotels will also be able to cross-sell their products to the airline's customers and crew. In fact, several group firms are already supplying their products to the two airlines operated by the Tatas. Consider also that Air India has a frequent flier club customer base of 3 million that can be used to offer discounted products.