Tatas bested the Rs 15,100-crore bid by a consortium led by SpiceJet promoter Ajay Singh and the reserve price of Rs 12,906 crore set by the government to be the winning bidder, Tuhin Kanta Pandey, secretary, department of investment and public asset management, said.
It’s come full circle. India’s flag-carrier Air India is all set to return to the hands of Tata Group, which founded it close to 90 years ago, latest by the end of 2021. The diversified conglomerate won the rather sedate race for full ownership of the state-owned airline that has long guzzled taxpayers’ money by offering Rs 8,000 crore as enterprise value (EV) consideration.
Tatas bested the Rs 5,100-crore bid by a consortium led by SpiceJet promoter Ajay Singh and the reserve price of Rs 12,906 crore set by the government to be the winning bidder, Tuhin Kanta Pandey, secretary, department of investment and public asset management, said. The airline, though heavily indebted, continues to hold great brand strength and repute, with its iconic Maharaja tag.
While the government as the carrier’s owner will get Rs 2,700 crore or 15% of the bid amount in cash, the balance will go towards clearing the airline’s part debt. Air India had a heavy debt of Rs 61,562 crore as on August 31; the government had assumed the carrier’s Rs 22,064-crore debt in FY20, in an effort to make its sale feasible. It will take over another Rs 46,262-crore debt as part of the deal with Tatas. The AI sale will be the first incidence of outright privatisation of a state-owned firm in the country after a gap of 17 years. The Centre ‘nationalised’ AI in 1953.
Besides 100% ownership of the airline, the wining bidder will also acquire 100% stake in Air India Express and 50% in Air India SATS Airport Services. The transaction, however, doesn’t include the national carrier’s non-core assets, including land parcels and buildings, including the one at Mumbai’s Nariman Point, which, put together, are valued at Rs 4,718 crore. These assets will be transferred to government-owned Air India Asset Holding.
Air India will be the third airline brand in the Tatas’ stable – it already owns 84% stake in AirAsia India and 51% in Vistara. The deal will add as many 141 wide-body and narrow-body planes to Tata Group’s aircraft fleet, a significant number of which is owned by AI. Besides, the Tatas would also get thousands of trained pilots and crew, lucrative landing and parking slots — Rs 1,800 at domestic airports and half that number at airports overseas — and privileged bilateral rights across Europe, North America and West Asia.
Reacting to the news, Tata Sons chairman emeritus Ratan Tata tweeted an old photograph of the company’s former chairman JRD Tata getting down from an Air India aircraft. He said: “Welcome Back, Air India… 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.”
Tata Sons chairman N Chandrasekaran said: “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 which makes every Indian proud.” He also referred to the airline’s “attractive international footprint” and the valuable slots and bilateral rights held by it. He noted that through the impending transaction, Tatas will get ownership of iconic brands like Air India, Indian Airlines and the Maharajah.
Financial bids put in by Tata Group holding Tata Sons through a special purpose vehicle Talace Pvt Ltd and the consortium led by Singh were opened a few days back and were vetted by the Core Group of Secretaries on Disinvestment headed by the Cabinet Secretary earlier this month.
Tatas will have to retain all employees of Air India for one year from the close of the transaction and could offer VRS in the second year. The new owner of the airline cannot transfer Air India brand or logo for five years and even thereafter, can transfer these only to an Indian entity.
Air India has over 12,000 employees – two-thirds of which permanent and the balance, hired on contractual basis; Air India Express has a staff strength of over 1,400. In the next five years, about 5,000 permanent employees will be retiring. “The entire disinvestment process has been carried out in a transparent manner, with due regard to confidentiality of the bidders, through multi-layered decision making..,” Pandey said. AI plunged into losses following its amalgamation with Indian Airlines in 2007. In recent years, the government has been making all-round efforts to privatise the airline. The process for disinvestment of AI and its arms started in June 2017 with the ‘in-principle’ approval of the Cabinet Committee on Economic Aaffairs. The first round did not elicit any Expression of Interest. The process resumed in January last year.
Having failed to attract substantial interests since 2017, the Centre in October 2020 sweetened the bidding construct by giving potential suitors the flexibility to decide how much of the airline’s debt they would like to take on as part of the deal. Earlier, the buyer was required to take over as much as Rs 23,286 crore of AI’s debt; the government was supposed to absorb the rest. The new bidding parameter of enterprise value allowed bidders the flexibility to re-size the company’s balance sheet; firms could therefore bid on the total consideration for equity and debt instead of a pre-determined, fixed debt with minimum cash consideration of 15% for equity.
According to a source familiar with the contours of the transaction, the total debt and assorted liabilities of AI being absorbed by the government will be close to Rs 67,000 crore. Given the total debt and liabilities of the airline is estimated at nearly `1 lakh crore, the deal would allow the government to recover around Rs 33,000 crore (Rs 18,000 crore from Tatas’ offer and around Rs 15,000 crore from non-core assets kept by it), he added.
To placate AI employees, the government will bear the cost of liquidation loss on account of shifting provident fund to the Employees’ Provident Fund Organisation from company-owned trust and included employees in the central government health scheme.