After multiple attempts, it is a done deal. Air India will be privatised, something that has been a mission impossible since 2017 when the government first put out the intention. The Tata Sons win Air India bid, taking over the airline, a subsidiary airline and a ground handling unit.
Tata Sons win Air India Bid.
The Government of India has been trying to get out of the aviation business for a long time since 2017. And they have been unsuccessful the first two times, for one or the other reason. In the past, they wanted to retain a part of the airline (24% stake) and wanted the majority owner to go for an IPO on a set timeline. One time, IndiGo offered to buy the international operations of Air India. However, the third time was the charm, and they asked the bidders to figure out how much money were they willing to offer for the airline. The only precondition was that at the minimum, 15% of the offer had to be cash, and the rest could be in the form of the debt takeover of the airline, which the new owner would service.
As was perhaps already guessed and known by many people, the Tata Sons bid and also, Ajay Singh, the promoter of SpiceJet, bid in his personal capacity. Five other bidders were disqualified already at the technical bid stage. After the bids came in, Air India’s transaction advisors were allowed to set a reserve price, and both the bids were opened. The reserve price was set at INR 12,906 Crores. Usually, this process would happen in the reverse order, but the Government of India did not want the price in the open before they had the envelopes in.
The Tata Sons bid INR 18,000 Crores (USD 2.4 Billion) for the airline, while Ajay Singh (SpiceJet’s promoter), bid INR 15,100 Crores. Hence, Tata Sons win Air India Bid.
Surprisingly enough, there were no protests this time around, and that hopefully means this time around, the airline’s takeover has the blessings of the employee unions as well.
What are the Tata Sons buying?
The bid includes the takeover of a 100% interest in Air India and its subsidiary Air India Express, which is a small airline focussed mainly on connecting the Middle East and South Indian markets. Besides, Air India’s 50% interest in AI SATS, the ground handling group, will also be included in this transaction. Air India has thousands of landing and parking slots at airports at domestic airports in India and slots at global destinations as well, besides a brand that is well known across the world.
What will not be handed over is the significant land and apartments of Air India, which will be taken over by the Government (valued at over INR 14,000 Crores!). Also, a large part of the debt of Air India will be taken over by the Government of India, which will service it over the years. Air India makes losses to the tune of INR 20 Crores every day (USD 2.67 million), as per the people on the dais making the announcement today.
What will also not be handed over will be Alliance Air, the regional airline subsidiary, and the last four hulls of Boeing 747-400s.
The Chairman Emeritus of the Tata Group, Ratan Tata, tweeted out a note welcoming back Air India. It included a picture of JRD Tata, the founder of AI, bidding goodbye.
Welcome back, Air India 🛬🏠 pic.twitter.com/euIREDIzkV
— Ratan N. Tata (@RNTata2000) October 8, 2021
The Fun Begins Now
Per media reports, the Tata Sons have already brought together teams of consultants to rationalise everything. Remember, Tata Sons own 51% of Vistara (and Singapore Airlines has to decide whether they are on board with Air India or not) and 84% of AirAsia India. So, unless the vision board of the Tatas include making their airlines compete against each other, there might be consolidation, sooner than later, coming up in the aviation business.
So, a lot of work is ahead. Everyone expects Tatas to restore the former glory of Air India, but a lot of work needs to be done before this is going to be achieved. It could be a win, as the turnaround of VSNL into Tata Indicom, or not, like the turnaround (or not!) of Corus.
Bottomline
Air India will be sold to the Tata Sons within the next ten weeks for a consideration set at USD 2.4 billion. With this, Tata Sons will begin reinventing Air India, along with the other aviation businesses in their fold. Overall, this is a net positive for Indian aviation. We might see a full-service carrier of scale and a no-frills carrier of scale (IndiGo) competing in the Indian market.
What do you think of Air India’s sale to the Tata Sons? Expect Hiccups? Or will it be smooth sailing from here?
(Press conference images courtesy PIB India)
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So my two pennies worth first:
1) Tata’s will have to asset strip to a certain extent first to pay down the $2bn debt (or significantly reduce it!).
2) Vistara will disappear. I cannot fathom how Tata’s will keep 2 carriers competing against each other. Air India is what they wanted. Vistara was if AI never came home. Expect SQ to use covid restructuring as an out!
3) Expect a large cull of stuff from Air India in a years time. Time to get rid of middle ranking waste of time employees. Pilots, engineers are an asset and a lot of cabin crew are on fixed term contracts (especially newbies) so they will remain.
4) not sure what they will do with Air Asia … potentially merge with AI Express and free them from paying royalties to Tony Fernandes.
5) New cabins in AI are a must … potentially a return of First Class as a vanity project in honour of JRD?
6) Focus on Indian Culture and Service hospitality standards … similar to what people expect in Taj Hotels.
… or the whole thing could collapse in about 4 years time!
So what happens to the employees who are under government contracts now? Will their benefits hold once AI if fully privatized?
Okay so now that AI has got privatized I fully expect certain things will happen:
1- Air India’s seat pitch was the most generous out of all the airlines. With it getting privatized, fully expect the seat pitch to be reduced.
2- On wide body jets, Air India has the 3-3-3 configuration in Y class. Fully expect that this will change to 3-4-3 to accomodate more seats.
3- The cabins in all classes will surely get refurbished and this is much needed. The cabins seemed pretty outdated.
There could be some more things happening for sure but these things are at the forefront for sure
Typp – Corus, not Chorus.
@Amit, thanks. fixed
All that Tata kissing up to Modi has finally gotten Tata the Air India that was once its.
Umm they won squarely and fairly. Don’t know what you’re talking about.
I think I can answer this:
The poster was referring to the fact that how the Tata group has been constantly providing donations to a certain political party and how in return they get the returns back from the govt.
The fact that Tata Sons is getting aircrafts worth Rs 32,000 crores for Rs 18,000 crores.
This is over and above the landing and parking slots.
So in other words:
– The reserve price was low
– Then they ask and get party donations
– Then they announce that X won the bid
Result:
– Air India gets sold for peanuts
– A certain party gets lots of funds
– Govt Treasury / Exchequer does not get the right price, stays empty
Hi Ajay,
Would like to have your initial analysis/views on the Flying Returns Program. I have about 2.5 lakh miles accumulated through SBI Air India co-brand card. Thanks
” What will also not be handed over will be Alliance Air, the regional airline subsidiary, and the last four hulls of Boeing 747-400s. ”
Hey Ajay,
Any thoughts on why this could be the case? Is it because the government fears Tata could cull connectivity to areas that aren’t as well connected or even kill Alliance Air?
Further, the B744 weren’t being used anyway, why not just include it as part of the sale?
@Chandan, at least when they decided to proceed with the sale, the 747s were used for Air India One transport (executive transport), so that might have been the reason they were excluded. Anyhow, they are 26 years old or so, and retired, it is good that they did not saddle it on the purchase. Eventually need to go to a museum or a scrap shop.
wrt Alliance Air, I guess the thought could be it might make the sale process not so popular if you wanted to sell a prop operation with a jet operation. That is what I heard back in the day.
Interesting, thanks for your insight, I wonder what this means for the DRDO AWACS program that was going to make use of the 6 Air India A320s.
https://www.google.com/amp/s/m.economictimes.com/news/defence/six-new-eyes-in-the-sky-for-indian-air-force-to-be-built-by-drdo-on-air-india-planes/amp_articleshow/79757622.cms
Would also be looking forward to what the government plans to do with Alliance Air (I’m assuming they’re keeping the ATRs) and if the Air India Centaur is part of the IP they talked about handing over to the TATAs since Alliance Air uses the Air India Centaur logo, hopefully all of this is sorted out and won’t be a hassle.
@Chandan, I don’t have any insight into the exact IP transferred since that is a confidential document for now, but what the Government assures everyone is that things are sorted out (and there were 200 to-and-fros between the govt and Tatas), so trust it is all ironclad by now. The old planes which were a part of the deal with DRDO should have been offloaded already, or will be done I hope, before the agreement is signed off and takes effect.
So will they we able to change the govt. culture of “who cares. I get a paycheck.” ?
Most of the highest rated air carriers in the world are the Asian ones who have a culture of customer service. If you have flown ANA, Asiana, Thai, Cathay Pacific, EVA, KAL, JAL you know the difference.
I sincerely AI will ever achieve that level but I do hope they improve a great deal. Until I see substantive reports showing improvement I will never fly them.