MIAMI – What do you do when you are a conglomerate that offers consultancy services, manufactures cars, and produces specialty chemistry products? Why buy an airline, of course! Especially when it can be positioned as a homecoming.
The Tata Group, an Indian-based multinational conglomerate, has purchased the state-owned Air India (AI). The government in 2018 had put the airline’s ownership out for bids, and Tata, finally, presented an offer at US$2.4bn.
What is interesting about this deal is that Tata founded the airline in 1932 as a mail carrier and operated it until it was nationalized by the government in 1953 shortly after Indian independence from Great Britain.
A Financial Catastrophe
Financially, the airline has been a mess since 2007 when it merged with another state-owned airline, India Airlines (IC). According to the BBC, the government said it was propping up the airline’s finances to the tune of US$2.6m per DAY.
The airline has said that high aviation fuel prices, high airport usage charges, competition from low-cost carriers, weakening of the rupee, as well as a high-interest rates due to its poor financial performance combined to cause its financial woes.
But Jitender Bhargava, a former executive director of the airline said that Air India “suffered for its inconsistent service standards, low aircraft utilization, dismal on-time performance, antiquated productivity norms, lack of revenue generation skills and unsatisfactory public perception.”
A Tough Sell
Per Reuters, the government had been trying to sell the airline for years. In March 2018, India decided to sell a 76% controlling stake in the airline along with US$5.1bn in debt. Unsurprisingly, no bids were received.
In December 2019, the government revised the deal to offer 100% ownership along with flexible debt financing. News sources say the airline has a debt of around US$9.5bn.
By December 2020, the government had received two bids: one from Tata and the other from a group of its employees and a US-based investment firm, Interrups. That second offer apparently fell through.
Ajay Singh, who runs the private budget airline SpiceJet, also bid for the airline in September.
But finally, today was the day. The government announced that it would sell to Tata, although neither party has said how much debt Tata would take on.
So Why Buy It?
The BBC tells why the airline would be attractive to a buyer, despite its debt. The airline has around 130 aircraft, “4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas.” AI also owns real estate and fixed assets which the air ministry has valued at around US$6bn.
An enviable portfolio, indeed.
Wikipedia shows a current fleet of 22 Airbus 319-200s, 36 A320s, 20 A321-200s, 4 B747-400s, 3 B777-200LRs, 15 B777-300 ERs and 27 B787-9 Dreamliners. The airline is part of the Star Alliance.
Featured image: Air India 777-200LR. Photo: Luca Flores/Airways