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.
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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