Tata confirms Air India bid, airline may change hands by FY22 end

As planned, the cash-strapped national carrier Air India received financial bids on September 15. A big development emerging from this was that the country's largest conglomerate Tata group, which had founded the airline 15 years before independence, has confirmed to have thrown its hat in the ring. Ajay Singh, Chairman and Managing Director (CMD) of budget carrier SpiceJet is also reported to have submitted financial bids. 

Process enters final phase

Minister of State for Civil Aviation General (Retd) VK Singh had told the Lok Sabha in July that the ministry expected financial bids for Air India by September 15, 2021. Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM), confirmed the receipt of financial bids for the flag carrier. "Financial bids for Air India disinvestment received by transaction adviser. Process now moves to concluding stage," he tweeted.

The government had targeted to conclude the sale of Air India by December this year, but according to sources mentioned by the Times of India, the entire process may be completed only by the end of the current fiscal. The government had set an ambitious target of Rs 1.75 lakh crore from disinvestments in FY22. If the Air India sale is successful, it would go a long way in contributing towards the government's disinvestment target.  

The government would now announce the floor price for the sale. Security clearances also have to be given. Evaluation of the bids is expected to take two to three weeks.

Tata always wanted Air India back

Tata's interest in Air India has been nothing new. In 2000, it had tried to regain control of the airline that went out of its hands a few years after independence. Opposition by the then civil aviation minister Sharad Yadav himself led to the disinvestment process being scuttled. The Narendra Modi government's firm push for Air India's privatisation had drawn the Tata group again to its long lost offspring. This was known informally from the day the carrier received expressions of interest (EoIs) last December. It was believed that Tata was integrating its airline businesses with Air India ownership in mind and that it would mount a bid through the low-cost AirAsia India, in which it has a controlling stake of around 84%.  

Also read: Is Tata integrating airline businesses with Air India ownership in mind?

Singapore Airlines, Tata's joint venture partner in full-service carrier Vistara, was not keen to join Tata in bidding for the heavily loss-making Air India in view of its own Covid losses. However, according to a Moneycontrol report, Singapore Airlines is now open to integrating Vistara's flight network with Air India, which is also essentially a full-service carrier. There is speculation that the two low-cost carriers AirAsia India and Air India Express might be merged. 

Govt messed up operations?

JRD Tata was the pioneer of civil aviation in India, first with a freighter service and then with Tata Airlines, which subsequently changed into Air India and then went into government hands after independence. A miffed JRD Tata had described the nationalisation of the airline as the "government taking it through the back door". In a note to the then Prime Minister Jawaharlal Nehru, Tata said, "I can only deplore that so vital a step should have been taken without giving us a proper hearing." 

JRD Tata in front of Air India B747 Emperor Shahjehan. Image courtesy: Twitter/@abhishektelang

After nationalisation, the carrier was renamed Air India International Limited, with a focus on foreign operations. JRD Tata continued as its chairman till 1977 and made the airline one of the finest that the world has ever seen. In fact, airline companies sought Air India's expertise during their early days, and many of them have become global giants.

Air India's spectacular decline

Air India, on the other hand, went on a free fall, losing money and credibility, and has faced a plethora of controversies ranging from mismanagement, industrial disputes and even allegations of shoddy safety procedures. JRD Tata was removed from his beloved airline by the Janata Party government, which was a body blow for Air India. A controversial merger with Indian Airlines in 2007 queered the pitch even further, and the airline has not made profits since that merger. Today, the airline has combined debts and losses amounting to about Rs 1 lakh crore. The government loses nearly Rs 20 crore every day to operate the airline, which has been kept aloft by a bailout since 2012, Reuters reported.  

Also read: Why Air India failed to sell twice before and what's working now

Under the present conditions, the shortlisted entities would have to bid on the airline's enterprise value (EV), which means that instead of having to take on a pre-fixed amount of debt, they would now have to quote an EV based on their estimate of the airline's combined debt and equity. Essentially, under the changed rules, the bidders would have to state the amount of debt they would be willing to absorb. The winning bidder would be the one quoting the highest EV. At least 15% of this value would have to be paid in cash, while the rest can be taken on as debt. The bid would be initially examined by the transaction adviser before being sent to the Union Cabinet for final approval. 

The government had offered to offload a 100% stake in both Air India and its low-cost carrier subsidiary Air India Express along with management control and a 50% stake in the ground-handling unit AISATS. After the failed disinvestment attempt in 2000, the government, in 2018, made a second attempt, offering to part with 76% of its stake in Air India. However, the offer fell flat, with no bidders coming forward.   

An Air India B787 Dreamliner. Image courtesy: Facebook/Air India 

Tata's interest in aviation has never sagged. One may remember that in the early 1990s, when India started to allow private players in the aviation sector, Tata came up with a plan to start an airline again. As pointed out in a Bloomberg Quint article, in 1994, Tata moved to set up an airline with the help of Singapore Airlines and with 100 planes. The idea had to be scrapped as the government was not willing to allow a foreign player.

Pressing concerns 

The government is expected to provide indemnity to the successful bidder from lawsuits filed by foreign corporations against Air India to recover arbitration awards that they have won against India. British oil firm Cairn Energy and Devas Multimedia had recently sued the airline to recover such arbitration awards.  

The ministry of civil aviation (MoCA) also has to deal with pressing post-divestment issues like getting employees to vacate staff colonies within a stipulated period of time, transferring provident fund accounts to Employees' Provident Fund Organisation (EPFO) and ensuring the continuation of health benefits through the Central Government Health Scheme (CGHS).  

The Tata group is being widely tipped to be best placed to turn Air India's fortunes around. The salt-to-steel conglomerate's due diligence in Air India's operations found a host of problems from aircraft needing major overhaul to free tickets being given away to employees. How Air India's future owner rejigs the airline's operations and whether they are able to restore the airline's lost glory would be interesting to see. 

(Cover image courtesy Wikimedia Commons/planespotters.net/Sean d'Silva)