Tata Group’s take over of Air India puts the competition on alert

SPECIAL REPORT
Tata Group’s take over of Air India puts the competition on alert
In a move that renewed hope in India’s civil aviation circles, and sent waves of optimism in business circles, the Tata Group acquired beleaguered national carrier Air India for $2.4 billion last week. The transaction will be completed by December 2021.Courtesy: Reuters

If the Tata Group can enter into a joint venture with Singapore Airlines, after ironing out all the internal wrinkles, then it could shape the contours of becoming one of the most formidable mergers in the history of aviation.

In the take-no-prisoners world of social media where fame can be fleeting and notoriety permanent, the one stamp of respect is when the memes are in your favour. Ratan Tata, Chairman emeritus of the Tata Group, is the new poster boy of India’s business space at the age of 83.

After Tata Sons won the bid to acquire national carrier Air India, the group's chairman emeritus Ratan Tata last Friday tweeted a vintage photograph of the company's former chairman JRD Tata stepping down from an Air India flight. It was a homecoming of sorts ever since India’s national carrier passed into government control and Air India started haemorrhaging money.

Social media went into a frenzy. The highest stamp of endorsement in India comes when the Amul hoardings sing your praises and this time it was no different when the billboards across the country and the information superhighway quipped in tribute to one of India’s most revered business houses - ‘Tata good buy’.

Long story short, Tata Sons has acquired beleaguered national carrier Air India in a $2.4 billion bid last week. The transaction will be completed by December 2021, according to the Department of Investment and Public Asset Management secretary Tuhin Kanta Pandey.The bid was filed by Tata Sons’ wholly-owned subsidiary Talace Pvt Ltd. The attempt had its fair share of competition from others. Tata Sons were up against the SpiceJet promoter Ajay Singh-led consortium.

Under the terms of the deal, Tata is expected to soak up $2.4 billion (153 billion rupees) of the airline’s more than $8.2 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 $360 million. This debt amounts to 24.8 per cent of Air India’s total debt.

Soaking up the debt

Air India’s total debt as of August 31 stands at $8.2 billion.

Air India's reserve price was fixed after the bids were called to ensure that the bidders do not get to know about the reserve price prior to their bidding. It ensured utmost confidentiality when it comes to the reserve price.

The government will divest its 100 per cent stake in Air India, Air India Express and 50 per cent stake per cent stake in ground handling company AISATS.

The news of the acquisition, when it broke brought about a huge sigh of relief in official circles coupled with a wake-up call to competitors in the airline industry who are aware of the Tata Group’s quest for perfection and profit when it comes to doing business.

An Air India Airbus A320neo plane takes off in Colomiers near Toulouse, France. The takeover is expected to provide a strong market opportunity to the Tata Group’s presence in the aviation industry.
An Air India Airbus A320neo plane takes off in Colomiers near Toulouse, France. The takeover is expected to provide a strong market opportunity to the Tata Group’s presence in the aviation industry.Courtesy: Reuters

A sentimental press statement from Ratan Tata welcomed the national carrier back into the Tate stables saying, "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.

“On an emotional note, Air India under the leadership of JRD Tata had at one time gained the reputation of being one of the most prestigious airlines in the world. Tatas will have the opportunity of regaining the image and reputation it enjoyed in earlier years. JRD Tata would have been overjoyed if he was in our midst today. We also need to recognise and thank the government for its recent policy of opening select industries to the private sector. Welcome Back Air India!" he added.

Airline circles have, however, not taken this as just another simple acquisition. There is strong evidence that the Tata Group, on the back of this buyout, have other ambitious plans.

A Vistara Airbus A320 passenger aircraft prepares for takeoff at Chhatrapati Shivaji International airport in Mumbai. If the possibility of a merger between Air India and Singapore Airlines becomes a reality it could alter the dominance of established airlines to a great extent.
A Vistara Airbus A320 passenger aircraft prepares for takeoff at Chhatrapati Shivaji International airport in Mumbai. If the possibility of a merger between Air India and Singapore Airlines becomes a reality it could alter the dominance of established airlines to a great extent.Courtesy: Reuters

Working out a possible JV with Singapore Airlines

The word in the skies is that the company has been working on a plan to combine its joint venture with Singapore Airlines. It makes sense, instead of having two full-service airlines compete with each other in their portfolio. If the contours of an arrangement with Singapore Airlines can be worked out, then there is a potential of this becoming one of the most formidable mergers in the history of civil aviation.

Indeed, the government is expecting the Tata Group to apply its Midas touch to an airline which was becoming a burden on the Indian taxpayer. Union Civil Aviation Minister Jyotiraditya Scindia said that the Tata Group now has a great responsibility to serve the people of the country with excellent service.

"I want to congratulate the winning bidders, Talace Pvt Ltd of Tata Sons. They have a great responsibility. I believe they would be able to serve the people of the country with excellent service.

“Air India's return to the Tata group marks a new dawn for the airline! My best wishes to the new management, and congratulations to DIPAM Secretary and the Civil Aviation Ministry for successfully concluding the difficult task of paving a new runway for the airline to take off!" Scindia wrote on Twitter. It is worth mentioning that the government ran a transparent and flexible process which now gives a fresh boost to India’s disinvestment programme.

Emirates Airline Boeing 777-300ER planes are seen at Dubai International Airport in Dubai. GCC airlines had taken a big chunk of the business forfeited by Air India and they did so by exploiting the travel needs of the Indian customers and catering to their requirements.
Emirates Airline Boeing 777-300ER planes are seen at Dubai International Airport in Dubai. GCC airlines had taken a big chunk of the business forfeited by Air India and they did so by exploiting the travel needs of the Indian customers and catering to their requirements.Courtesy: Reuters

GCC airlines and British Airways taking notice

Should operations and services get off the ground so to speak then there is a possibility that Air India could be back in future reckoning competing with behemoths like Emirates airlines and British Airways given that Air India’s portfolio would have Air India, Air India Express, Indian Airlines, Vistara and Air Asia India.

There is talk that the package could be made leaner and more effective to deal with current market conditions instead of spreading the brands too wide in order to deal with the competition, especially the Gulf based airlines who have decoded the art of wooing Indian passengers with their tailored brand of service. This includes flights to the Gulf, which are high on volume, and long-haul flights as well. Unlike in the past, a dose of liberal thinking will be applied to a new business approach to try and bring the airline back into reckoning and, perhaps, there is nothing better than the Tata touch which would appeal to passengers and employees alike.

At last count Air India, with a fleet of 117 aircraft, has around 1,500 pilots and 2,000 engineers. Enough firepower to try and consolidate its reputation in the skies and on the ground.

The operative word here is reliance, and this is what the Tata Group exemplifies. The Group's chairman N Chandrasekaran termed the buy out as a "historic moment" and said the Group's endeavour will be to build a world-class airline that makes every Indian proud." At the Tata group, we are delighted to be declared as the winner of the bid for Air India. This is a historic moment, and it will be a rare privilege for our Group to own and operate the country's flag bearer airline. It will be our endeavour to build a world-class airline that makes every Indian proud. On this occasion, I would like to pay tribute to JRD Tata, pioneer of Indian aviation, whose memory we cherish."

Business comes full circle. A file photo showing former Tata Group head JRD Tata disembarking off an Air India flight. The return of the airline to the Tata fold is a homecoming of sorts.
Business comes full circle. A file photo showing former Tata Group head JRD Tata disembarking off an Air India flight. The return of the airline to the Tata fold is a homecoming of sorts.Courtesy: ANI

Homecoming of sorts

It is a homecoming of sorts for the new owners who were originally the old owners of this airline. Air India was once known as Tata Airlines and was founded in 1932 by JRD Tata. It then went public and took the name Air India in 1946. Air India went into government control in 1953 but JRD remained at the helm of affairs. Post-nationalization, the government held a 49 per cent stake in Air India, the public and Tata Sons owned the remaining 51 percent. However, Air India started losing altitude when JRD was removed from office in 1978. Subsequent attempts to bring the airline under control from the heavy weather it was running into started to fail. The bureaucrats who were given the task to pilot the airline focused too heavily on the commercial bottomline instead of addressing the requirements of the customer.

Signs of good times! Tata Group Chairman emeritus Ratan Tata sent out an emotional tweet following the successful takeover of Air India from the GoI.
Signs of good times! Tata Group Chairman emeritus Ratan Tata sent out an emotional tweet following the successful takeover of Air India from the GoI.Courtesy: ANI

In yet another endorsement that the Tata Group focuses heavily on the well being of its employees Rajiv Bansal, Secretary, Civil Aviation announced that, “Tata Sons will retain all employees for the period of one year. In the second year, if they aren't retained, they will be offered VRS by the winning bidders.” Gratuity, pension fund and post-retirement medical benefits will also be honoured by the winning bidders. The government has said that the interest of the employees and retired employees would be taken care of in the disinvestment process.

It’s now time to fasten seat belts and prepare for take-off.

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