At long last, Air India has been sold. To the Tata Sons. The Government of India had purchased Air India under the Air Corporations Act from Tata Sons in 1953. So, 68 years later, Air India is headed back home.
In a joint press conference by Secretary, DIPAM (Department of Investment and Public Asset Management) which operates under the Ministry of Finance, Government of India, and the Secretary, Civil Aviation, the announcement was made on October 8.
As per the Government of India, the reserve price set for Air India was set at an enterprise value (EV) of Rs 12,906 crores. After a long divestment process---which was originally given the green light in 2017, and did not bring home any success the first two times--the Government of India managed to get two bids for the disinvestment process. The Tata Sons bid for EV of Rs 18,000 crores, while a consortium led by SpiceJet promoter Ajay Singh, bid for an EV of Rs 15,100 crores. Accordingly, Tata Sons were declared winners.
As per the EV methodology, only 15 percent of the consideration is payable in cash to the Government of India. So, only Rs 2,700 Crores is due to the government from Tata Sons directly. The rest of it, Rs 15,300 crores, will be the debt takeover from Air India, which will have to be paid back to where it was borrowed from.
A 100 percent stake in Air India, Air India Express and a 50 percent stake in Air India’s ground handling JV AISATS is going to be changing hands. Non-core holdings such as land and buildings worth Rs 14,718 crores will be retained by the Government.
In the process of the sale, the government will stop the cash drain of almost Rs 20 crores which the airline has been losing every day. However, it has had to hold back Rs 46,000 crores, which will have to be serviced by the government going forward, in part with the non-core holdings it will retain.
Determined govt tries various approaches to offload Air India
The sale has big implications for aviation and otherwise. First, this shows the determination of the Government of India to try out various approaches till it succeeds. Second, it creates a new aviation behemoth in the country, to compete with IndiGo, which has become the biggest domestic carrier in just 15 years after launch.
As per MoneyControl, Tata’s consolidated market share (including Air India, Vistara and AirAsia India) in key domestic markets will be anywhere between 10-45 percent. But Tata’s consolidated market share in International routes out of India will be higher than 50% percent with Vistara just starting out and Air India already controlling 50.64 percent of international travel out of India.
What does Air India sale to Tatas mean for Indian aviation?
First, expect reorganization with the four Tata airlines being reorganized at some point in time in the future.
Second, expect tighter contracts, and hence reduced margins for other service providers in the ecosystem, such as airports, MRO providers and so on. Third, an upgrade on Air India’s service levels.
Last but not the least, the privatisation of the airline will give India another opportunity to create a world class carrier coming out of India once again. This would not just benefit the Tatas if they get it right, but benefit the hospitality and tourism sector as well, and also bring in foreign funds into the country. Hence, the wish is that the Tatas get it right!
(Ajay Awtaney writes about Indian Aviation on livefromalounge.com and tweets from @LiveFromALounge)