Tata Sons bags Air India for £1.8 bn

Wednesday 13th October 2021 07:15 EDT

The Tata Sons reclaims Air India after 68 years and several governments, tracing a policy arc from nationalisation to disinvestment to privatisation. It’s also a homecoming that’s been two decades in the making, with the Tatas first making an unsuccessful bid to buy and the government of the day then making an unsuccessful bid to sell its stake. The Tatas finally got third time lucky, marking the first successful privatisation by a government in nearly 17 years.

Tata Sons – which bid through its wholly-owned subsidiary Talace Pvt Ltd – quoted an enterprise value of £1.8 billion for the bleeding national carrier. This includes the debt of £1.53 billion that it will take over and the £270 million cash that will flow into government coffers. The rest of AI’s £ 6.15 billion debt (at the end of August) will be borne by the government.

Tata’s offer was nearly 40% higher than the reserve price of £1.29 billion set by the government and 19% more than what rival bidder, a consortium led by SpiceJet CMD Ajay Singh, had offered. Seven bidders had initially shown their interest by December 14, 2020 but five were disqualified as they did not meet the requirements set by the government. One of the disqualified bidders had approached the Delhi high court but its plea was rejected in August this year.

“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… Welcome back, Air India!” Tata Sons chairman emeritus Ratan Tata said in a note posted on his Twitter handle, with a thowback JRD photo. Aviation is widely seen as a passion of his – he has a pilot’s licence – and while the Tata Group re-entered the industry via Vistara (in partnership with Singapore Airlines) and AirAsia, it’s the return of AI to the fold that’s been a long-cherished dream.

During Atal Bihari Vajpayee’s term, the Tata Group had joined hands with Singapore Airlines to bid for a 40% stake in Air India, which was then the national carrier only flying overseas. Adding Air India in the hangar will make it the largest player from the country on international routes, while it will be the second largest player in the domestic sector, after IndiGo.

Tata Sons said in a statement, “Air India provides a unique and attractive international footprint.” It added that more than two thirds of AI’s revenue comes from international markets such as North America, Europe and West Asia. The airline’s frequent flyer programme has more than three million members.

The salt-to-software conglomerate was seen as the frontrunner once the government restarted the sale process after another unsuccessful attempt in 2018. The transaction marks a return to an aggressive privatisation plan chalked out by the Modi administration, which has made it clear that the government should exit non-strategic businesses. It has taken seven years to complete a major privatization of a state-run entity.

The government is looking to use the money being spent on keeping the national carrier afloat for social welfare schemes. Air India had accumulated losses of almost £8.4 billion and the government was taking a daily hit of £2 million.

The sale came with the assurance that none of the13,500 employees of Air India and Air India Express will be removed by the new owner during the first year. After that, the 8,084 permanent AI employees can be offered a voluntary retirement scheme, civil aviation secretary Rajiv Bansal said at the press conference.

The terms of the transaction allow the Tatas to sell up to 49% in Air India after a year, although they can undertake realignment of the airline during the first year itself. The Tata Group will also sign a business continuity plan for three years. While the brand and eight logos will also be transferred to the Tatas, they come with a five-year lock-in, and the new owner cannot sell them to a foreign entity.

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