With Air India in bag, Tatas could be eyeing Indian aviation's biggest merger
Tata Sons' successful $2.4b bid for debt-laden Air India is the first step in the conglomerate's plans to become a major aviation player in the region.
Tata Sons will be the new owner of the national carrier, the government announced on Friday, finally bringing to end privatization efforts that began in 2018.
Air India, with a fleet of 117 aircraft, has around 1,500 pilots and 2,000 engineers. "Under Tata Sons, the carrier will be a formidable player - the takeover will be good for industry as the government will not have to keep pumping money into an airline burdened with debt," said Ashwini Phadnis, a Delhi-based aviation journalist.
Under the terms of the agreement, Tata is expected to absorb 153 billion rupees (Dh7.48 billion) of the airline's more than 615 billion rupees ($8.2 billion or Dh30.2 billion) debt burden. The excess amount in the bid, leftover after acquiring this debt, will be the amount payable by the company in cash, which is around Rs 27 billion (Dh1.32 billion). This debt amounts to 24.8 per cent of Air India's total debt.
Tata's ambitions do not just end here - reports have emerged stating that the company has been working on a plan to combine its joint venture with Singapore Airlines - Vistara - Air India, and AirAsia India. "It makes little sense for them to have two fullservice airlines compete with each other in their portfolio," said Vinamra Longani, head of operations for Sarin & Co, an Indian law firm specializing in aircraft leasing and finance.
"Singapore Airlines and Tata together have wanted to jointly own Air India before and if they are able to convince SA to come on board in what shape and form it remains to be seen," said Longani. For now, the government is selling Tata 100 per cent of its stake in the state-owned national airline, including Air India's 100 per cent shareholding in AI Express Ltd and 50 per cent in Air India SATS Airport Services Private Ltd.
"Should they decide to combine all these airlines into one entity, it is going to go down in history books as one of the most successful mergers in the aviation industry," said Longani. "Knowing the Tata Group and their expertise, I'm sure they'd be able to pull it off but there are a lot of ifs and buts to this" The change in management definitely bodes well for the millions of passengers that rely on the airline to make international trips.
The change in management definitely bodes well for the millions of passengers that rely on the airline to make international trips. "This means better in-flight offering - the cabins need refurbishing and the service needs to be brought to today's standards," said Longani. "All of that is going to change, and that's definitely a plus for passengers and for the sector"
An initial sale attempt by the government in 2018 failed to attract any bidders. The successful sale of the loss-making national flag carrier is seen as a major government victory considering the burden on taxpayers.
The airline, which carried about 18 million domestic passengers in 2019, has suffered from overly bureaucratic management and political interference as privately owned low-cost carriers gained market share.