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Air India lands with its original parents

Wednesday, 13 October 2021 | Rajesh kumar

The Tatas have companies like Tata Engineering, Taj Sats and IHCL among others, which can benefit from Air India’s infrastructure, assets and slots

It is indeed a “Ghar Wapsi” for the debt-laden Air India after 68 years as Tata Sons has won the bid to take over 100 per cent of the Government’s stake in the national carrier. The formalities to complete the handover to Tata is expected to be completed by December this year. The real test of Ratan Tata’s business acumen will be to bring back the airline on track but it won’t be easy even though there are synergies between group companies and the Indian airline. The ailing airline was originally launched as Tata Air Services under the leadership of philanthropist Jehangir Ratanji Dadabhoy Tata in 1932. A few years after India’s independence in 1953, the Government purchased a majority stake in the airline company. And thus Air India was nationalised.

To be fair, Air India has good assets, infrastructure, slots and bilateral agreement. The Tatas have companies like Tata engineering, Taj Sats and IHCL among others which can benefit with Air India. The Tata’s will need to put in tens of thousands of crores of capital to clean up the balance sheet; pay off liabilities that come with the airline; and to fix, grow, and bring the airline to a point where it can be a meaningful and an effective global competitor.

This was the third attempt to sell the national carrier and this time the Centre went all out, deciding to offload its entire stake lock, stock and barrel to the highest bidder. Initial attempts to disinvest the carrier faced trouble, following which the process was started again in January 2020 but the COVID-19 pandemic created hurdles. In April 2021, the Government asked potential bidders to put in financial bids. As the bidders were unenthusiastic about certain clauses, the Government had in October last year amended the clause relating to the transfer of Air India’s debt to the new investor, giving bidders flexibility to decide on the quantum of humongous debt they want to absorb.

Of the Rs 18,000 crore, the Government will get Rs 2,700 crore in cash, while the remaining amount will be debt transferred to the new entity. With this, the entire 100 per cent shareholding of Air India along with its shareholding in Air India Express Limited (AIXL) and 50 percent in the ground handling joint venture AISATS will pass on to the new owner. The Government will absorb the balance debt of Rs 46,262 crore, which will be transferred to a special purpose vehicle (SPV) set up by it — Air India Assets Holding Limited. When adjusted against non-core assets such as land and buildings worth Rs 14,718 crore that will also be parked in the SPV and the cash amount of Rs 2,700 crore from Tatas, the net liability on the government comes to Rs 28,844 crore.

Apart from 141 planes and control of 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas, Tatas will also have the ownership of iconic brands like Air India, Indian Airlines and the Maharaja.

Tata Sons owns 84 per cent share in Air Asia which has a market share of 5.2 percent, and 51 percent stake in Vistara which has a market share of 8.3 percent. Together with Air India’s market share of 13.2 percent, Tatas could be in control of 26.7 percent market share and be the second biggest player after IndiGo.

Years after it earned the tag of ‘The Maharaja’, Air India’s fortunes plummeted and it started incurring heavy losses. Air India has been in losses ever since its merger with domestic operator Indian Airlines in 2007. According to the Ministry of Civil Aviation, since 2009-10, the Government has pumped in Rs 1.10 lakh crore to support Air India. During 2019-20, the airline incurred an operational loss of Rs 8,743.59 crore. In 2020-21, Air India reported a provisional operational loss of Rs 6,555.66 crore.

Air India (originally Tata Air Services) was converted into a public company after the World War II and renamed Air India Limited in 1946. International services started between Bombay (Mumbai) and Cairo, Geneva, and London, and Air India International Limited was formed in 1948. This is the year when the Nehru Government purchased a 49 percent stake in the company. India nationalised all Indian airlines and created two corporations — one for domestic services and the other for international.

Senior Tata was deeply distressed by the decision of the Nehru Government to nationalise the Air India “through the back door” and even suspected that the airline was deliberately bad-mouthed so that it could be acquired after its value came down, letters written by JRD Tata reveal. He shot off a telegram to Nehru, which said. “I can only deplore that such a vital step should have been taken without giving us a proper hearing.

“(Former Tata Steel CEO Russi) Modi and I were called by (then Communications Minister) Jagjivan Ram only to be informed of the Government’s decision to nationalise the industry. Although I told him that I had prepared and brought with me an alternative scheme, which in my humble judgement was better calculated to achieve the Government’s objective, the minister sought our advice only on questions of compensation and the like,” he said.

Tata continued as chairman of Air India till 1978, when his services were unceremoniously terminated by then Prime Minister Morarji Desai. Desai sent a terse letter to Tata informing him of the Government’s decision to appoint former Air Chief Marshal PC Lal as the chairman of Air India.

(The writer is a Special Correspondent with The Pioneer. The views expressed are personal.)

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