Air India gets a second wind

By: |
October 11, 2021 6:30 AM

Tatas a reliable buyer, sale will drive aviation dynamism

The government has infused some Rs 65,000 crore into the airline since 2009-10 and will need to repay some Rs 45,000 crore of debt; hopefully, the sale of real estate will ease the pain.The government has infused some Rs 65,000 crore into the airline since 2009-10 and will need to repay some Rs 45,000 crore of debt; hopefully, the sale of real estate will ease the pain.

The government must be congratulated for having completed the sale of Air India (AI) to a strong and reliable buyer. The price is not important—Rs 2,700 crore in cash—because the national carrier was a millstone around its neck; the sale will spare taxpayers the burden of picking up the tab for an over-staffed, over-leveraged airline that’s making losses of Rs 20 crore a day. The government has infused some Rs 65,000 crore into the airline since 2009-10 and will need to repay some Rs 45,000 crore of debt; hopefully, the sale of real estate will ease the pain.

The fact is serious buyers have stayed away all these years—including in 2017-18—because of the onerous conditions attached to the deal, especially the fact that the government wanted to hold on to a 24% stake until an IPO. It is best to make a clean break. The government must continue to offer the Tatas any support that is needed to ensure it is a smooth landing for them. In particular, it must pacify the unions if they object to the transaction, and convince them it is in everyone’s best interests. DIPAM must use the learnings from the Air-India transaction to work on more privatisation, especially that of Bharat Petroleum Corporation Limited, so that the non-tax receipts for FY22, and in the years ahead, don’t fall short of the targets.

On the face of it, at an enterprise value of Rs 18,000 crore—of which Rs 15,300 crore is debt—it may sound like a great deal for the Tatas. To be sure, the aircraft, the landing slots—local and international—and alliances with international airlines all have value. But AI’s no steal. There is the baggage of 12,000 public sector employees, a large number of whom are permanent; even if they are permitted to let go of people after a year, retrenching manpower will not be easy and the VRS could cost a packet. Moreover, the Tatas will need to invest a substantial sum to spruce up the airline and to strengthen the operations.

True, the Tatas would have pencilled in the costs and the enormous effort it would take to turn around the airline. However, given AI is in running condition, it should not take them very long to get it back on track and add market share; together with Vistara and Air Asia, both of which are believed to be under some amount of financial stress, it can be a formidable combination. Indeed, the Indian skies desperately need a good full-service carrier—to fill the space vacated by Jet Airways—and a revamped Air India should not be short of passengers.

At the best of times, airlines anywhere in the world can be a tricky business although in India, Indigo has made a big success of it and commands an enviable market share. The space badly needs some competition which a rejuvenated AI can bring in, since it does have slots on the busy routes. A stronger AI will also mean competition for foreign airlines, many of whom have captured market share in India simply because AI was mismanaged. There’s a big market out there and Tatas must go get it.

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