Tata Group Acquires Air India

Tata Group Acquires Air India

The Indian government has sold its national carrier, Air India, to the Tata Group, ending the long-wait for the divestment of the loss-making Airline.

The bidding was awarded to the country’s biggest conglomerate as the highest bidder at about $2.4bn. The deal includes a 100% stake in Air India and a low-fare unit in Air India Express as well as a 50% holding in ground-handling company AISATS.

“Talace Pvt Ltd won the bid to own 100% of government stake in Air India,” Tuhin Kant Pandey, secretary, Department of Investment and Public Asset Management (DIPAM) announced today.”

“Bidders have agreed to all terms and conditions. Five bidders were disqualified as they did not meet the criterion,” the Dipam Secy said. “The process was carried out in a transparent manner with due regard to confidentiality of bidders.

Air India has many assets, including prized slots at London’s Heathrow airport, a fleet of more than 130 planes and thousands of trained pilots and crew. Under the takeover deal, Tata Group will retain all AI employees for one year, and can offer VRS in the 2nd year, as per the Aviation Ministry.

Group of ministers known as the Air India Specific Alternative Mechanism, headed by home minister Amit Shah and included finance minister Nirmala Sitharaman, commerce minister Piyush Goyal and aviation minister Jyotiraditya Scindia, approved the bid winner.

The Tata group originally founded the airline in 1932 before it was taken over by the government in 1953. The government has failed to make the national carrier profitable, and overtime, it has racked up losses worth $9.5bn, leaving it with no option than to sell the airline.

The success of the takeover by Tata is a big boost to Prime Minister Narendra Modi’s government reforms, as the previous attempt to sell 75% of the airline in 2018 failed.

The deal was brokered after the government made it more attractive by simplifying the debt terms for buyers. The reserve price was fixed at Rs 12,906 crore, and the winning bidder will take Rs 15,300 crore debt, according to EconomicTimes. Bids for the carrier were sought at an enterprise value. Under the formula, a minimum 15% was to go to the government and the rest will be used to reduce existing debt.

Analysts say that Air India would bring in benefits for the Tatas, if the group plays it right.

“Air India has come full circle, back into the arms of its founders, the Tatas. Bold, brave move but will it be bountiful for the new owners? If they play it right, take advantage of the vacuum presented by a post-Covid landscape, they can carve a new future for the national airline,” said Shukor Yusof, founder of Endau Analytics, a Kuala Lumpur based consultant.

“India’s got a lot going for aviation – a rising middle class, likely growth in travel & tourism domestic & from abroad & it sits between the Gulf & Southeast Asia, an area of vast potential for air travel. Finally it fits nicely into (PM) Modi’s privatisation plans. Of course there will be lots of challenges, including riding fuel costs, intense competition from LCCs & if Tata has the staying power to manage heavy losses during the initial takeoff period,” he added.

Analysts believe Air India remains attractive due to profitable infrastructure at its disposal and passenger growth of around 20% per year.

BBC noted that in addition to its fleet of over 130 aircraft, Tata will now have control of the following: Airline’s 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas.

Air India also owns millions of dollars worth of prime real estate. According to the aviation ministry, its fixed assets – land, buildings, planes – in March last year were worth more than 450bn rupees ($6bn).

The airline also has more than 40,000 pieces of art and collectibles, including an ashtray designed and gifted by Spanish surrealist artist Salvador Dali. In return the airline had given Dali a baby elephant, which was flown to Spain.

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