Tata Sons is likely to emerge as the winning bidder for Air India but the formal announcement is awaited. The government had invited expressions of interest (EOI) in December of 2020 for the disinvestment of Air India, and while it had confirmed multiple bidders, the Tata Group and Spicejet Chairman Ajay Singh in his personal capacity, were regarded as the frontrunners.
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In March 2018 a similar attempt by the government to sell a 70 percent stake in the national carrier had found no takers. For the Tatas, a winning bid could mean coming around the full circle on account of the fact that the airline was founded by JRD Tata in 1932.
Speaking to CNBC-TV18 in November of 2019, N Chandrasekaran, Chairman, Tata Sons had shared his take on the Air India deal. He said the Tatas will look at every opportunity, as long as it added value to the airline portfolio. He also talked about the group's plans for synergies across the aviation operations. He said, “We will keep looking at every opportunity that comes definitely. And as long as it can add value to our airline portfolio, then we'll take a look."
To discuss all these recent developments, CNBC-TV18 spoke with Jitendra Bhargava, Former ED at Air India, Kapil Kaul CEO - Indian Subcontinent and Middle East Region, CAPA, and Devesh Agarwal, chief analyst at Bangalore Aviation.
Bhargava said it is a very healthy success from the government of India. Not many people were very confident that the disinvestment procedure was attractive enough when they did it in the 2017-18 period. But this time the government had become wiser thanks to the previous experience and decided to give the 100 percent equity to the potential acquirer. Now that was one fundamental change.
Tatas getting back is the other big development delightful feature of this exercise, though, I know the final decision is yet to come, but the reality is that they would be the front runners and they would eventually get it.
“It is a good homecoming for the Air India getting back into the Tatas and Tatas will ensure not because of the emotional connect, not because of the passion that they have for the airlines, but because they want to get into the business and be the number one,” said Bhargava.
He further said, “I remember a statement made by Ratan Tata that whichever business we get in, we need to be one and two in the top. So, once having got Air India in its current avatar, now you have a large international network that cannot be matched by any other Indian carrier. So Tata will only build on it and getting on and making it to a big airline, global airline.”
Now, when you have AirAsia India and Vistara other small players in the Indian market, Tatas currently are not counted amongst the bigger players as far as the aviation industry is concerned. But once you acquire Air India, and you add to the Vistara and AirAsia India, you suddenly get catapulted into the League of mega carriers. Now that's one big change, said Bhargava, adding that the second change is Indigo being about 50 percent plus domestic market share that may not be the ground for competing in a big way but the international market is huge. We have witnessed Gulf carriers, Southeast Asian carriers, monopolising the Indian market, because Air India did not have the finances to expand the fleet at the pace with which the market was growing. However, with Tatas coming in, you will have that advantage.
“I have often gone on record to say that Air India may not have been as good an airline as it ought to have been but it's also not as bad an airline as it is made out to be. The two fundamental factors leadership, lack of professional management, and both will automatically come once the disinvestment process has gone through. Money, management, and leadership will take Air India great places, and I am looking forward to it,” said Bhargava.
Kaul said, I think is a historic decision and with a very positive long-term effect. So it's a great decision for the government. It does two things for them. One, they are not going to invest a billion dollars every year, which they have been doing for possibly last 10 years and they may have to do it for a decade, so they saved almost a billion-plus, which is my assessment and that is the first positive, he added.
Second is that whilst they will still hand over an airline to a stronger player, so that the indirect benefits to the economy, indirect benefits to aviation, to tourism and trade is enhanced significantly. And the government at this point of time needs to look at indirect benefits out of Air India, which they are handing over to a strong partner and that will work.
“In my view, it is a historic decision and I would like to congratulate the government on two counts. One they showed and maintained that strategic determination and clarity to exit Air India. They showed determination on the last mile because it is critical. So, I would also congratulate the Ministry of Civil Aviation, Air India for very quietly and efficiently carrying out the process. Because it is not easy for a bureaucrat to sign the deal like Air India and if they have done it, it's done in the national interest,” said Kaul, adding that to the Ministry of Civil Aviation, and to the Air India and to all the bureaucrats that were involved in it, it's possibly a decision they will sign in the national interest and we must recognise and appreciate that.
As for the road ahead is concerned, first, is it's going to be a long haul for Air India, it is not going to be that things will turn around easily, but Tatas bring two major inputs to it. One is that this business requires a long-term outlook and patient capital, they have both. So that is a very big positive - you may have a great management team but without capital, it doesn't make any sense. And they have to invest a significant amount of capital to make this work and they have the patient capital. The second is, with the Tata Group profile, they can attract the best in business. It is a deal that is being seen with great interest globally and once the decision is taken, there will be people who would want to participate in this kind of airline turnaround. So getting experts is not a problem but it is not going to be easy, cautioned Kaul.
It is a very complex restructuring and most of the restructurings don't go well. But with patient capital and world-class expertise, they could hire and keep, keep a long term outlook and be patient, over the next three to five years, you may see a fundamentally different business, said Kaul, adding that for the consumer and the trade, the benefits will be quite quick. It is a win-win for all.
According to Agarwal as well the road ahead for Tatas is not going to be easy. If one were to focus on the network, the management, and the capital, the road ahead is very different. Air India that Mr. JRD Tata led, the aviation scenarios since then till now has changed 180 degrees. When we talked about domestic you have one behemoth called Indigo, which owns more than 50 percent market share - if you see the operating tactics Indigo, if a particular airline flies one destination one flight a day, Indigo promptly puts three flights a day on that and it is called a technique or network mirroring. So, network is something that I if I was sitting in Mr. Ratan Tata seat, I would look at consolidating all the narrow-body assets basically Vistara, Airasia India, and Air India Express and make essentially a low-cost regional player. When it comes to the long-distance let's face it the 777s of Air India are poorly maintained, the aircraft have very little residual value. They would be okay to fly to the United States but in Europe, as the new environmental norms start coming to play, the 777's are going to get taxed even more and more leaving the 787s and 787s that Air India has are too heavy, they are the first generation 787s.
So one has to look at what the Tatas are going to do with all these combined assets, said Agrawal, adding that they should create an entire domestic low-cost carrier.
When it comes to management, airlines require very fast and nimble management and with due credit, this is something Tatas are going to have to look at very closely because the Tata management is one of the only organisations that have the concept of Tata Administrative Service which mirrors the Indian Administrative Service. So one has to go and see how much will they depend on the parent organization? Also when it comes to capital, they are going to need it.
The Indian consumer by an overwhelming majority makes that purchase decision based on price and second, based on flight, when Bhargava talked about the international network - the Middle East carriers are not going to just sit idle because India constitutes more than 12 percent of their capacity and post COVID they are going to come back at India to get back market share with a vengeance. They're going to cut, slash burn, bleed, whatever, and they are going to pull back that market share, said Agrawal, adding that the current environment is very competitive and it is multifaceted competitive. It is something that is going to have to be negotiated carefully and the Tatas are going to have to take some very hard decisions, including abandoning some traditional principles of how they do business.
For the entire discussion, watch video