Tata buys Air India back, revival of airline's fortunes expected: Reports

The loss-making and debt-ridden Air India had become an albatross around the government's neck

Tata buys Air India back, revival of airline's fortunes expected: Reports
An Air India Dreamliner. Image courtesy: Wikimedia Commons/John Taggart

Air India has finally returned to its parent the Tata group, according to reports. The cash-strapped national carrier, which was taken over by the Jawaharlal Nehru government in 1953 from JRD Tata, flew into one problem after another, steadily losing its position as one of the world's most formidable brands that it was under Tata.  

A panel of ministers have now accepted the recommendation of Tata's bid for the airline, and an official announcement is expected soon, Bloomberg Quint reported. A Moneycontrol source confirmed that the salt-to-steel conglomerate Tata group has indeed placed the highest bid for Air India. The Tata bid was about Rs 3,000 crore more than the bid price and about Rs 5,000 crore more than that offered by Ajay Singh, India Today reported.

The airline had received financial bids on September 15 and it was reported earlier that the new owner of Air India would be known by the middle of October. CNBC TV18 had reported that the government plans to complete the privatisation process of Air India by December this year. SpiceJet Chairman and Managing Director (CMD) Ajay Singh was also in the fray to buy the prestigious airline.  

The government, though, appeared tight-lipped. Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM) tweeted,"Media reports indicating approval of financial bids by Government of India in the AI disinvestment case are incorrect. Media will be informed of the Government decision as and when it is taken."

The final approval would have to come from two levels -- one by the Air India-Specific Alternative Mechanism, which is an empowered group of ministers comprising Union Home Minister Amit Shah, Finance Minister Nirmala Sitharaman, Commerce Minister Piyush Goyal among others, and another by the Union Cabinet headed by Prime Minister Narendra Modi.

The airline's reserve price was likely to be around Rs 15,000 crore to Rs 20,000 crore, The Times of India reported. According to the revised disinvestment offer, the shortlisted entities had to bid on the airline's enterprise value (EV), which means that instead of having to take on a pre-fixed amount of debt, they were given the option to quote an EV based on their estimate of the airline's combined debt and equity. Essentially, the bidders had to state the amount of debt they were willing to absorb. The bidder quoting the highest EV was to be declared as the winner. At least 15% of this value is to be paid in cash, while the rest can be taken on as debt. 

The Air India bids were evaluated by a panel comprising Union Finance Minister Nirmala Sitharaman, Aviation Minister Jyotiraditya Scindia and Commerce Minister Piyush Goyal among others, the TOI report added. The government had set an ambitious target of Rs 1.75 lakh crore from disinvestments in FY22. A successful Air India sale would go a long way in contributing towards the government's disinvestment target.  

JRD Tata in front of Air India B747 Emperor Shahjehan. Image courtesy: Twitter/@abhishektelang

The reported acquisition of Air India by Tata now all but drops the curtain on an arduous process to sell the loss-making and debt-ridden airline, which had become an albatross around the government's neck, so much so that the previous Aviation Minister Hardeep Singh Puri had mentioned on more than one occasion that the option before the government was to either privatise the airline or shut it down. Former Union Finance Minister Arun Jaitley told Live Mint in 2017, "To run Air India, you have invested Rs 50,000 crore. That money is the government's money, that’s your money. It could have been used for school education. And if 86% of flying can be handled by the private sector, then it can also handle 100%."  

Also read: Why is Tata so keen to buy national carrier Air India?

The Tatas' affinity towards Air India is natural. Air India essentially had emerged out of Tata Airlines. Tata Airlines started as Tata Air Services with an investment of Rs 2 lakh given by a reluctant Dorabjee Tata, the then Chairman of Tata Sons, and two second-hand de Havilland Puss Moth aircraft. 

JRD Tata was enamoured by flying from the very beginning and his first flight was in 1919, at the tender age of 15 years. He was fascinated with flying as a young boy holidaying in northern France with the family of Louis Bleriot, who was the first to fly across the English Channel. JRD Tata was awe-struck by the skills of Adolph Pegoud, a pilot hired by Bleriot.  

In 1929, JRD Tata became the first licensed pilot in India. He got his pilot's A-licence in the shortest number of hours. According to Tata archives, he flew solo after just three-and-a-half hours in the air with an instructor. 

In April 1932, Tata was given a contract to carry mail for Imperial Airways of Britain. On October 15, 1932, JRD Tata himself flew a tiny single-engine de Havilland Puss Moth from Karachi's (currently in Pakistan) Drigh Road aerodrome to Bombay's (currently Mumbai) Juhu aerodrome via Ahmedabad, carrying 25kg of airmail. This was the first flight of Tata Airlines, and indeed of the country.

JRD Tata described the flight thus: "On an exciting October dawn in 1932, a Puss Moth and I soared joyfully from Karachi with our first precious load of mail, on an inaugural flight to Bombay. As we hummed towards our destination at a 'dazzling' hundred miles an hour, I breathed a silent prayer for the success of our venture and for the safety of those who worked for it. We were a small team in those days. We shared successes and failures, the joys and headaches, as together we built up the enterprise which later was to blossom into Air-India and Air-India International."  

Since then, the airline went on expanding. The first full year of operations of Tata Airlines was in 1933. That year, the airline flew 1.6 lakh miles (2,57,495.04 km), carrying 155 passengers and 10.71 tonnes of mail.

In 1946, Tata Airlines became a public limited company and was renamed Air India. After independence, the Government of India took up 49% of the airline. That happened in 1948. Then in 1953, the government of India bought a majority stake in Air India from Tata Airlines, though JRD Tata continued as its chairman till 1977. After nationalisation, the carrier was renamed Air India International Limited, with a focus on foreign operations. 

The domestic business was transferred to the Indian Airlines Corporation, which was formed by a merger of Deccan Airways, Airways India, Bharat Airways, Himalayan Aviation, Kalinga Airlines, Indian National Airways and Air Services of India and the domestic wing of Air India.

A miffed JRD Tata had described the nationalisation of the airline as the "government taking it through the back door". In a note to the then Prime Minister Jawaharlal Nehru, Tata said, "I can only deplore that so vital a step should have been taken without giving us a proper hearing."  

An Air India Dreamliner. Image courtesy: Facebook/Air India

JRD Tata continued as its chairman till 1977 and made the airline one of the finest that the world has ever seen. In fact, airline companies sought Air India's expertise during their early days, and many of them have become global giants.

Air India, on the other hand, went on a free fall, losing money and credibility, and has faced a plethora of controversies ranging from mismanagement, industrial disputes and even allegations of shoddy safety procedures. JRD Tata was removed from his beloved airline by the Janata Party government, which was a body blow for Air India.

Tata had tried to regain control of Air India when the first attempt at disinvestment was made in 2000. However, the government could not go ahead with the disinvestment plan at that time due to stiff political opposition. Then a second disinvestment attempt was made in 2018, with the government offering to part with 76% of its stake in Air India. However, the offer fell flat, with no bidders coming forward.  

Finally, the government, in January 2020, offered to offload a 100% stake in both Air India and its low-cost carrier (LCC) subsidiary Air India Express along with management control and 50% stake in the ground-handling unit AISATS. 

Now, after two failed disinvestment attempts and repeated extensions of deadlines as a result of the Covid-induced global aviation downturn, the fact that the government is within touching distance of wrapping up the Air India sale shows its resolve to get the airline privatised. 

Also read: Air India and Tata cultures apart; will they be happy together?

The Tata group would now get close to 150 aircraft (Air India and Air India Express combined), including a wide array of widebodies like the B787-8 Dreamliner, B777-300ER, B777-200LR and B747-400 and narrowbodies like A319, A320, A320Neo, A321 and B737-800. Tata also co-owns Vistara and AirAsia India at present and has a combined fleet of 79 aircraft, including the B787-9 Dreamliner widebody and A320, A320Neo, A321-251NX and B737-800 narrowbodies. It is expected that Tata would now integrate similar airline models, rather than running four airlines separate from each other. So full-service carriers (FSC) Air India and Vistara may see a fair degree of interoperability, including consolidation of flight routes. Similarly, the operations of the low-cost carriers (LCC) Air India Express and AirAsia India could be consolidated. 

Acquiring Air India would mean that Tata, which had gone long-haul with Vistara lately, is now set to own the airline with the biggest long-haul footprint. Add to that Air India Express's significant presence in the Gulf market and Tata is set to have the largest international footprint among Indian aviation companies. Apart from that, by acquiring Air India, Tata would get 4,400 domestic and 1,800 international landing and parking slots at Indian airports and 900 slots at foreign airports too.  

Tata is widely being regarded as the company best placed to revive the fortunes of the struggling national carrier and perhaps take it back to its glory days. However, there would be some major obstacles on the way. The airline has not made profits since a controversial merger with Indian Airlines in 2007. Today, the airline has combined debts and losses amounting to about Rs 1 lakh crore. The government loses nearly Rs 20 crore every day to operate the airline, which has been kept aloft by a bailout since 2012, Reuters reported.   

The Tata group's due diligence in Air India's operations threw up major shortcomings like aircraft needing upgrades to there being nearly 4,500 to 5,000 excess employees. A large number of free air tickets are being given away to the Air India employees, which is adding to the company's financial woes. The airline has also suffered from delayed payment of employees, industrial disputes and strikes, mismanagement, lax safety procedures among other things.

(Cover image courtesy Wikimedia Commons/John Taggart)