Air India may have at least one bidder this time: the Tatas

A source said there has been “a lot of pressure” from government officials over Tatas’ seeming reluctance to participate in the upcoming bidding process

Air India, tata airlines, JRD Tata, Tata group
An official from Air India said the cost of reviving the airline was nearly ₹30,000 crore. Representational image: PTI

Air India was born in 1932 as Tata Airlines and its first-ever flight, between Karachi and Mumbai, was chartered by J R D Tata himself. The Tata group rightly has been known since then as the pioneer of aviation business in India.

The group ran Air India as a premium airline, known for its unparalleled service, for nearly two decades till the government’s sudden nationalization forced it to give up the airline. And AI has turned into a state entity. The twists and turns in Air India’s journey since it came under government ownership are well known.

Take the then government’s decision to merge the two erstwhile separate airlines (Air India and Indian Airlines which respectively catered to overseas and domestic traffic) into the present entity in 2007. This single decision has wreaked the maximum havoc on AI. Since the merger, Air India has never turned in a profit as it continued to guzzle thousands of crores of taxpayers’ money meanwhile. Now, the Modi government has thrown up its hands and it is clear that no more funds may be pumped into this perennial loss-maker.

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The government has firmly decided to exit Air India. The first attempt in the first term of the Modi government to sell off AI was a flop; not a single bidder came forward. Now, as a second attempt is underway (with significant changes in bid conditions) and the obvious choice of a buyer remains the Tata Group.

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A source close to the developments told The Federal that the Tata group was ready to put in a bid for Air India in the ongoing disinvestment process. This person said there has been “a lot of pressure” from top government officials over Tatas’ seeming reluctance to participate in the upcoming bidding process.

Speaking at a Vistara (full-service airline of the Tata group) event yesterday, Vistara Chairman Bhaskar Bhat said the group was evaluating whether to put in a bid but that no decision had as yet been taken. A Tata group spokesperson declined to comment on queries sent on the subject.

Another source said there were pros and cons in any bid by the Tatas and the group would likely evaluate both before taking the plunge. This person said the benefits of buying out Air India would perhaps include valuable international airport slots of AI and its vast, experience team of licensed employees (commanders and first officers). Among the downsides would surely be the nearly ₹25,000 to ₹30,000 crore debt that any buyer of Air India will have to shoulder (though backed by aircraft assets) and the additional amount needed to bring the airline up to speed with industry norms.

An AI official had earlier said that their own internal estimate of the amount needed to just refurbish the existing fleet of aircraft, change upholstery and livery and install things like entertainment systems was nearing ₹30,000 crore.

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So whoever is brave enough to take on Air India would likely have a rather large investment to make almost immediately to operate the airline. Meanwhile, the first person claimed that the government may agree to offer Air India “virtually for free as it has indicated it would take as nearly 100% haircut”. But this could not be confirmed independently and the airline’s Preliminary Information Memorandum does not indicate that all of the over ₹50,000 crore debt on its books will be taken over by the government.

It is pertinent to remember here that after the government takeover of Air India in the fifties, the Tata Group tried to re-enter the airline business more than once. In the first instance, it agreed to bid or a stake in AI in partnership with Singapore Airlines but alleged corruption in the deal thwarted its attempts.

Years after the Tata lead consortium failed to bag this deal, the then Civil Aviation Secretary hinted at what all went wrong at the time in a book.

Anyway, the second attempt at entering the airline business was made in 2012, when the Indian government partially lifted the cap on foreign airlines investing in Indian carriers and the Tatas wanted to start a new airline from scratch. Thus was born AirAsia India, where subsequently the third partner (an Indian company) was bought out and the Tatas now own majority stake (AirAsia Bhd has 49%). Subsequently, the group also entered into a pact with Singapore Airlines to launch Vistara.

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AirAsia India is a budget carrier while Vistara is now the only other full-service airline apart from Air India. The Tatas now have majority stake in two airlines so the next question is, will AI be merged with Vistara if acquired by the group? The first person quoted above said all such decisions will come later, for now the group was focused on the modalities of making a bid.

Meanwhile, BJP MP Subramanian Swamy, who has already been litigating against the two Tata airline ventures, again expressed his opposition to any move by the Tatas to bid for Air India.

He tweeted, “It is ridiculous for Vistara to bid for Air India. Vistara is an illegal airline and there an ongoing case in Delhi High Court on a PIL filed by me. In that its partner, TATA is under CBI& ED probe. I hope MoCA does not foolishly allow them to participate.”

Will the government listen to this warning? It has already faced embarrassment once for failing to attract any bid for Air India, its minister has said in Parliament that the airline will be shuttered if not sold off and it is obvious that the government has neither the intention nor the money to fund AI’s losses any further. The only thing that will keep Air India from shutting down is a viable bid and the Tatas seem best placed to win this time.

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