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Two years ago, on January 27, 2020, the Preliminary Information Memorandum for the acquisition of Air India was published by the Government of India’s Department of Investment and Public Asset Management. This was the third attempt at the privatization of Air India. Today, on January 27, 2022, the transaction has been completed.
Air India along with the low-cost subsidiary Air India Express and a 50 percent stake in ground handling firm AISATS has been transferred to the Tata Group against consideration of INR 2,700 Crores ($358 million). The Tata Group has also taken over debt on the Air India balance sheet worth INR 15.300 Crores ($2 billion).
The Tata Group had been selected as the winning bidder for Air India in a contest held through the pandemic. The government of India had made its position clear earlier on, where they had stated that if the airline was not going to be privatized it would have to be closed down. Per various records, the airline had been generating a loss of INR 20-25 Crores ($2.6-3.3 Million) on a daily basis, and the losses were being funded by the Indian taxpayer.
Tata and Ajay Singh both wanted Air India
The bidding attracted interest after the government gave up on the idea to hold on to 26 percent of the airline and decided to privatize the whole in one go. The founding group, Tata Sons and SpiceJet owner Ajay Singh along with a consortium of fund managers were the two bidders for the acquisition. The bidding was done on an enterprise valuation methodology, where the entities bidding could choose how much cash they would pay for the whole stake in Air India, and how much debt would they continue to serve. The rest of the debt of the airline, along with its significant non-aeronautical assets such as the land parcels owned by the airline, has been segregated into a separate entity.
The Tata Group was very interested in having a long-time partner Singapore Airlines, with which the Tata Group has had a comfortable relationship for a very long time, to join in the bid to acquire Air India. That was the plan back in the early 2000s when one of the first bids was made by Tata and SIA to acquire Air India, but it was nixed by the government of the day. Now, with the pandemic ongoing and TATA and Singapore Airlines already operating a full-service carrier in Vistara, Singapore Airlines refused to be a part of the effort to resurrect Air India to its former glory.
Earlier this week, the finance department of Air India signed off on a balance sheet that stated the financial position of the airline as of January 20, 2022. On the 27th, the Board of Air India met and resigned from their respective positions, and the board of the Tata Group met to sign off on the transaction. Subsequently, after a meeting with the Prime Minister of India, the Chairman of the Tata Group, Mr. N Chandrasekaran headed to Airline House in Delhi, where a transfer of control was done in the presence of Air India and Tata group personnel.
Tata has not revealed its plans with Air India
The Tata Group has not revealed its plans for the airline. However, it is widely expected that a new CEO will be installed at Air India who will be tasked with the turnaround of the airline. Currently, resources from various Tata Group companies have been redirected to the operations of Air India, with the brain trust for airline operations coming from AirAsia India, an airline held majorly by the Tatas, and being supported by Tata Strategic Management Group as well.
Various small initiatives have already been planned at the airline effective January 28, including a gradual revamp of the meal service across the airline (catered by another group company TajSATS), and an increased focus on the grooming of the cabin staff. An announcement on board will also be made about how the airline is now a Tata company. It is being billed as a homecoming across the conglomerate, as Air India was originally a part of the Tata Group before it was nationalized in the 1950s. The big initiatives however will need to wait as a CEO appointment comes through.
It is widely expected that AirAsia India and Air India Express, the two low-cost airlines will be merged shortly into the future. AirAsia India is over 80 percent owned by the Tata Group and on track to be 100 percent owned shortly with AirAsia Berhad selling out to the Tata Group. Air India Express largely focuses on low-cost regional operations, such as those to the Middle-East and South-East Asia from India. This could be a perfect merger since there is no overlap between the operations of the two airlines. However, it would mean the transition to a mixed fleet, as Air India Express is a Boeing 737 operator and AirAsia India is an Airbus A320-family operator for now.
Combined, all the airlines of the Tata Group will now hold a 24 percent market share in Indian domestic operations. What the future holds for these airlines, remains to be seen, or heard from the Air India owners, who have been tight-lipped about their plans for now.
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