Air India goes to Tatas for ~18K cr
AIRLINE WILL RETURN TO TATAS AFTER 68 YEARS; FIRST PRIVATISATION MOVE IN TWO DECADES 12,000-ODD EMPLOYEES WILL BE RETAINED DURING THE FIRST YEAR OF OPERATION
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 ~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 stateowned airline, the Tatas will get the lowcost subsidiary Air India Express and a 50 per cent stake in ground handling firm AISATS.
Of the bid amount of ~18,000 crore, the Tatas will pay ~2,700 crore in cash, while taking the remaining ~15,300 crore as debt.
The group will also have to pay around ~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 ~15,100 crore, of which ~12,835 crore will be the debt to be retained, and ~2,265 crore would have been the payment in cash. The reserve price for the airline was set by the government at ~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.
“MR J R D TATA WOULD HAVE BEEN OVERJOYED IF HE WAS
IN OUR MIDST TODAY… WELCOME BACK, AIR INDIA”
RATAN TATA, chairman emeritus, Tata Sons
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.
The Centre, which has invested ~54,584 crore since 2009-10 as cash support and ~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 ~620 crore per month to operate the airline, which is losing ~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.”
Ever since Air India’s disinvestment process started in 2020, the pandemic ravaged the aviation business, ballooning Air India’s debt to ~61,562 crore. Even after disinvestment, the government will have to service ~46,262 crore of debt and ~15,834 crore of current liabilities like accumulated airport charges and vendor payments which would be transferred to Air India Assets Holding, a special purpose vehicle set up to transfer Air India’s debt.
After netting the value of noncore assets worth around ~14,718 crore and ~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 ~44,678 crore, said Pandey.