Tata Completes Air India Take Over

On January 27, 2022, Tata Group announced the completion of the transaction for purchase of Air India from the Government of India. “The Tata Group takes over management and control of the airline, starting today,” stated the company in the press release.

The Government also released the statement informing that the Air India strategic disinvestment transaction has been completed with Government receiving a consideration of 2,700 crore from the Strategic Partner (Talace Pvt Ltd, a wholly owned subsidiary of Tata Sons Pvt Ltd), retaining debt of 15,300 crore in Air India and AIXL and transferring shares of Air India (100 per cent shares of Air India and its subsidiary AIXL and 50 per cent shares of AISATS) to the Strategic Partner.

 

“The Tata group welcomes Air India’s new customers and is excited to work together to make Air India, the airliner choice in terms of passenger comfort and service.”
—Ratan N. Tata

“It is pertinent to mention that following Government’s approval of the highest price bid of Talace Pvt Ltd for strategic disinvestment of Air India, the Letter of Intent was issued to the winning bidder on October 11, 2021. The Share Purchase Agreement (SPA) was signed on October 25, 2021. Thereafter, Strategic Partner (Talace), Air India and the Government worked towards satisfying a set of conditions precedent defined in the SPA including approvals from anti-trust bodies, regulators, lenders, third parties, etc. These conditions have since been met to mutual satisfaction,” the Finance Ministry stated.

The transaction notably covers three entities – the flag carrier and premier full-service airlines Air India, low-cost carrier, Air India Express and AI SATS that provides a comprehensive suite of ground handling and cargo handling services.

“Thus the strategic disinvestment transaction of Air India successfully concluded with transfer of 100 per cent shares of Air India to Talace along with management control. A new Board, led by the Strategic Partner, takes charge of Air India,” shared the Secretary, Department of Investment and Public Asset Management (DIPAM).

“We are excited to have Air India back in the Tata Group and are committed to making this a world-class airline. I warmly welcome all the employees of Air India, to our Group, and look forward to working together.” Said N. Chandrasekaran, Chairman, Tata Sons Pvt Ltd. The chairman also called on Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman with respect to this closure.

“The Tata Group would like to acknowledge Prime Minister Modi’s commitment to reforms and faith in India’s entrepreneurship spirit, which made this historic transition possible. Our Prime Minister has in action demonstrated what his commitment to ‘Minim Government, Maximum Governance’ means. We philosophically agree with the Prime Minister’s vision for the aviation sector of making it affordable and ensuring it contributes to boosting ‘Ease of Living’ for citizens,” the company noted in its press statement.

Founded by Jamsetji Tata in 1868, Tata group comprises of 30 companies across ten verticals. While the airline was originally founded by JRD Tata, who also piloted the first flight that initiated Indian aviation in 1932. The carrier was then sold to the government in the 1953.

Ratan Tata, Chairman Emeritus, Tata Sons, Chairman Tata Trusts, also extended a warm welcome to the passengers onboard Air India flights, “The Tata group welcomes Air India’s new customers and is excited to work together to make Air India, the airliner choice in terms of passenger comfort and service.”

The airline, also launched a social media campaign, “Wings of Change,” nudging towards the new era of Air India. It stated, “We’ve heard you and we look forward to giving you what you’ve asked. We’re making a commitment today. We have been the wings of a nation. Now, we will also be the wings for its future.” However, soon after this the airline’s page was filled complaints in between the congratulations as people shared their experiences. Representatives from the company have been responding to these, but there are challenges more than the online page and the debt that await the airline amid nostalgic elation.

Air India owns 56 per cent of the fleet and the owning of these aircraft has been a major reason due to which Air India has many old aircraft in its fleet. These older aircraft which have not been replaced by newer ones are not as fuel-efficient and faster as the newer aircraft, which is a drawback for the national carrier. While the market in general, shifted from owning aircraft to leasing them many years ago.

The new owner will also encounter hurdles in terms of dealing with Air India’s massive headcount. The carrier reportedly has about 1,500 trained pilots and about 2,000 aircraft engineers to take care of the fleet. Moving from the work culture of a public sector undertaking under the government to meeting the expectations and work standards of a private sector owner will also be an area that might attract some friction.

The Air India strategic disinvestment transaction has been completed with Government receiving a consideration of 2,700 crore, retaining debt of 15,300 crore

The landscape of the industry has also shifted, more so after the pandemic. Low-cost carriers have emerged, new airlines like Akasa and Jet Airways are joining and re-joining the industry respectively. However, despite that Air India’s addition to its aviation portfolio could be a significant upper hand for the Tata Group’s international operations. As per the reports, it will get access to 1,800 international landing and parking slots at domestic airports and 900 slots at airports overseas, in addition to 4,400 domestic slots.

The Tata Group has also been putting in constant efforts to expand its operations in the Indian aviation industry apart from Air India. Last year the group had announced the increase of its stake to about 84 per cent in the budget carrier, AirAsia India [Tata’s joint venture with AirAsia (Investment) Limited, Malaysia]. Tata that also operates the Vistara airline in partnership with Singapore Airlines owning a 51 per cent stake in the full service carrier. There have also been predictions that Indian airlines industry is heading towards consolidation and it could result in a 2-3 airline system in the future.

If Air India returns to the Tata Group that had sold the airline to the government over six decades ago, the Tatas have a strong chance to become the second largest player in the Indian domestic aviation market. In an earlier report, the Directorate General of Civil Aviation (DGCA) had also stated that if the Tatas bag Air India and eventually consolidate their aviation interests, their likely domestic market share would be about 23 per cent, making it a formidable number two in the Indian aviation market. The consolidation can also take place with all the three lines being merged under one brand.

Gaining the control of the airline, is but a mere beginning. Going ahead, the Tata group will be required to make analysed and strategised choices considering the various factors planted on the path.