Nearly 70 years after Air India was nationalized, it will return to (a version of) its prior home. The government announced today that Tata Sons offered the successful bid for the privatization of the airline. The original operation was run by JRD Tata until the government took it over in 1953.
This is a historic moment, and it will be a rare privilege for our Group to own and operate the country’s flag bearer airline.s – N. Chandrasekaran, Chairman, Tata Sons
Tata offered 180 billion rupees, or approximately $2.4 billion for the company. Roughly $2 billion will be in assumed debt with the balance a cash contribution. The competing bid led by SpiceJet‘s Ajay Singh priced at 151 billion rupees.
The numbers are high, but pale in comparison to the investments made by the government over the past decade. According to the Secretary of the Department of Investment and Public Asset Management, the Indian government invested roughly $7 billion in cash and another $7 billion in debt since 2010.
The government will retain the debt not transferred to Tata. This means additional costs until it can fully retire the debt, but the day-to-day losses of 20 crore (~$2.6 million) should no longer be its problem by the end of the year when the deal closes.
It is also worth noting that the privatization effort took many years, as the government slowly scaled back the scope of the debt and employment obligations for the new owners. It finally appears to have removed enough overhead from the process since the middle of the last decade to strike a deal.
Still to be determined is exactly how Tata will use the new assets. The company also owns 51% of Vistara; the balance is owned by Singapore Airlines. Running two airlines that compete against each other in the Indian market cannot be a recipe for long term success.
Read More: Air India losing money on 90%+ of its routes
And the Tata Sons group has not been shy about supporting Vistara through the pandemic. The company continued to support the operation with new cash infusions over the past 18 months.
Vistara also continues its expansion efforts. Its new 787 deliveries may be suspended, but the company is doing what it can with the existing fleet (and amidst rapidly shifting border closure rules) to expand its long-haul footprint. This should include the US market, whenever the new planes finally arrive.
Air India, on the other hand, as the nation’s flag carrier, holds a strong portfolio of slots in busier global airports and access to markets under bilateral treaties. Those should prove valuable if well utilized as the global travel market recovers.
Tata also holds the majority stake in Air Asia India. That brand has struggled to capture significant share in the market.
A favor to ask while you're here...
Did you enjoy the content? Or learn something useful? Or generally just think this is the type of story you'd like to see more of? Consider supporting the site through a donation (any amount helps). It helps keep me independent and avoiding the credit card schlock.
The only way to make a million $ in airlines in India is to start with a billion $- It is harder than the US due to low cost competition and let us not forget the politics of owning and operating along with labor rules that make it hard to fire incompetent staff.
India (and many other countries) also suffer from much of the industry running in US dollars rather than local currency. On top of that, India’s regulatory burden around leasing and other typical airline actions is pretty high.