Air India Sold To Tatas For A Sum Of Rs 18,000 Crore

The winning bidder for India's flag carrier was Tata Sons Pvt., putting an end to decades of attempts to privatise a cash-strapped and debt-ridden airline, as well as years of taxpayer bailouts that have kept the company afloat.

Air India Sold To Tatas For A Sum Of Rs 18,000 Crore
Air India Sold To Tatas For A Sum Of Rs 18,000 Crore

The winning bidder for India's flag carrier was Tata Sons Pvt., putting an end to decades of attempts to privatise a cash-strapped and debt-ridden airline, as well as years of taxpayer bailouts that have kept the company afloat.

Tuhin Kanta Pandey, the chief bureaucrat at India's Department of Investment and Public Asset Management, said during a briefing on Friday that Tata Sons, which first founded Air India Ltd. with a namesake branding in 1932, bid 18,000 crores ($2.4 billion) as an enterprise value for Air India. By the end of 2021, the government hopes to have completed the transaction. 

The high-profile sale is a victory for Prime Minister Narendra Modi, who has launched a major privatisation strategy to address a mounting budget deficit, confirming his position that the government should stay out of most firms.Air India provides Tata Sons with a third airline brand, as well as access to over a hundred planes, thousands of qualified pilots and personnel, and lucrative landing and parking slots all over the world. 

According to Bloomberg News, a panel of ministers accepted a recommendation from bureaucrats who recommended the conglomerate's bid ahead of an offer from entrepreneur Ajay Singh last week. According to Pandey, the consortium led by Singh, who is also the chairman of budget carrier SpiceJet Ltd, bid 15,100 crores. 

Key Numbers:

The Tata Group will retain ₹ 15,300 crores of Air India's debt and pay ₹ 2,700 crore cash to the government, Pandey said.

The cash-strapped carrier had total debt of ₹ 61,560 crores as of August 31, and the debt not absorbed by Tata Sons will be taken over by the government.

The deal doesn't include Air India's non-core assets like land and buildings, and Tata Sons will have to retain all of the airline's employees for at least a year.

* Air India has a fleet of 117 wide-body and narrow-body aircraft and Air India Express Ltd. has 24 narrow-body aircraft, Tata Group said in a statement.

Rich History

Tata Sons, the holding company for the salt-to-software conglomerate and owner of Jaguar Land Rover, the British luxury manufacturer, is returning to an asset it began almost 90 years ago. The airline was founded in the 1930s by famed industrialist and philanthropist JRD Tata, who was India's first licenced pilot, and originally flew mail between Karachi and Bombay, now known as Mumbai, in then-undivided British-ruled India. 

Air India swiftly gained popularity among those who could afford to fly once it became commercial and government-owned in the 1950s.

“Welcome back, Air India,” Ratan Tata, JRD Tata's successor and chairman emeritus of Tata Sons, said in a tweet. “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.”

Air India lost its domestic and international market share as private carriers emerged in the 1990s, followed by a wave of low-cost, no-frills airlines in the mid-2000s. The airline, which is known for its Maharaja mascot, found itself in a position where it wasn't the only option for travelling internationally, and its reputation for immaculate service and hospitality began to fade. 

Gulf carriers, like Emirates Airline and Etihad Airways PJSC, began offering seamless, and cheaper, links to Europe and the United States through their bases in Dubai and Abu Dhabi, further harming Air India.

Prized Assets

For Tata Group, Air India adds a third airline brand to its stable, considering the conglomerate already holds a majority interest in AirAsia India and Vistara, a joint venture with Singapore Airlines Ltd. Air India -- which hasn't turned a profit since its 2007 merger with Indian Airlines -- holds prized landing and parking slots at London's Heathrow airport, which may help Vistara lure business travellers with direct flights to Europe.

The purchase will be a test of the group's aviation acumen. Tata Group has faced criticism for not running its existing aviation businesses efficiently, even though they represent a tiny portion of overall revenue.“I congratulate the Tata Group on winning the bid for Air India and wish them all the success,” runner-up Singh said in an emailed statement. “It's time for the Maharaja to reclaim its position as a leading airline of the world.”