Whoa: Air India Finds Buyer, Will Be Privatized

Whoa: Air India Finds Buyer, Will Be Privatized

38

This is a major development, and I’m curious to see how it plays out…

Tata Group wins bid for Air India

Air India has been struggling financially for years, and has perpetually been on the brink of collapse. The airline is owned by the government of India, which has given the airline just enough money to stay in business, but nothing beyond that. The airline is currently costing taxpayers over $1 billion per year.

The government has been looking to privatize Air India, and it looks like a buyer has now been found. Tata Group has won a bid to purchase Air India, and the deal should close by the end of the year. With this deal, Tata Group is paying a total of $2.4 billion. That includes taking over $2 billion of Air India’s $8.2 billion in debt, plus paying about $400 million to the government.

Tata Group will acquire 4,440 domestic and 1,800 international slots at Indian airports, plus 900 slots at international airports. Air India has 8,000 full time employees and 120 planes.

Per a statement from Tata Group:

“At the Tata group, we are delighted to be declared as the winner of the bid for Air India. 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. It will be our endeavour to build a world-class airline which makes every Indian proud.”

For those not familiar, Tata Group is a major investment firm that has stakes in all kinds of companies. In the aviation sector, Tata Group already owns 51% of Vistara, and 84% of AirAsia India, so the company already has interests in aviation, and this will likely lead to some consolidation. To take it a step further, Tata Group actually founded Air India in 1932, before it was taken over by the government in 1953. So I guess in reality Tata Group is regaining control of Air India after nearly 70 years.

It’s also interesting to note that SpiceJet was allegedly also bidding for Air India, though the airline didn’t bid quite as much as Tata Group, so lost out.

What does this mean for the future of Air India?

Is this really going to happen?!?

I’m so caught off guard that I don’t know what to make of this. There are an endless number of struggling government-owned airlines out there that haven’t turned a profit in a long time, and that are looking to be privatized. It almost never works out.

Suffice to say that I wasn’t expecting that Air India would be able to find a buyer. A few initial thoughts:

  • I’m curious to see if this actually happens, or if there end up being issues (like with employees) that prevent this deal from closing
  • With Tata Group also owning stakes in Vistara and AirAsia India, what exactly is the plan here? Will we see one mega-airline created in India, or will the airlines operate independently? Will Vistara be merged into Air India, or vice versa, or what?
  • What will Tata Group do to make Air India succeed, which the airline has struggled to do for well over a decade? Will Air India become more premium (like Vistara), more low cost (like AirAsia India), or what?
What does this mean for the future of Vistara?

Bottom line

Tata Group has won a bid to purchase Air India for $2.4 billion, in a deal that’s expected to close before the end of the year. The company also owns stakes in Vistara and AirAsia India, so this is a pretty major development.

I can’t wait to see how this plays out — will this deal actually close, and if so, what will it mean for Indian aviation going forward?

What do you make of Tata Group winning the bid for Air India?

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  1. Jared

    @Ben - In other news, another ULCC by the name Air Akasa to join the Indian market next summer. In case seeking for news.

  2. Leigh

    Many good and educated comments. Nice.

    Curious. Have the financial losses been to government influenced union contracts (see South African Airways, etc), or other mismanagement (see SAA again)?

    Tata is successful for a reason, and it would be great to see them make a success of the airline.

  3. Cody Shah

    Few things to point out

    1. Tata is one of the largest conglomerate in the world owning, Jaguars and Range Rover, tata Starbucks, salt, tea, steel (top 5 in the world), TCS (one of the largest IT company), Taj hotels, Titan watches, Tanishq gold to name a few.
    2. Tata is acquiring 2 division, not 1

    Air India (Merged Airline of Air India and Indian Airlines) - premium airline
    AI express - low...

    Few things to point out

    1. Tata is one of the largest conglomerate in the world owning, Jaguars and Range Rover, tata Starbucks, salt, tea, steel (top 5 in the world), TCS (one of the largest IT company), Taj hotels, Titan watches, Tanishq gold to name a few.
    2. Tata is acquiring 2 division, not 1

    Air India (Merged Airline of Air India and Indian Airlines) - premium airline
    AI express - low cost airlines of Govt.

    It is getting landing spots at Military airports or places where there are no airport structures yet.

    3. Vistara has been Delhi based airline. Whereas Air India has base in all the metro cities of India

    4. Tata owns airline catering unit Taj Sats which will cater to all. Airlines

    5. Tata has joint venture with Starbucks and was serving Starbucks food in air before pandemic. I wouldn't be surprised if that is extended to Air India.

    6. Vistara is joint venture between Tata and Singapore airline. Both Air India and Singapore Airlines are star alliance. Now its upto Singapore Airline and Govt of India if they are allowed to merge Vistara with Air India or not. Will Singapore increase it's stake or not will decide future of all 3 airlines. Singapore just recorded massive net loss and got govt funds. Will it use that money to increase thier stakes in India?

    7. New ceo will likely be former top executive of Singapore or Silk air. While scoot people may join Ai Express side.

  4. East2West

    Funny how Indians in the US constantly say how great and rich they are but while they have all these issues in their country and even ask for donations from the US when there corona cases were bad.

    1. Cody Shah

      Yet usa had to literally force India to provide malaria vaccines to make thier own covid medicine.

    2. Jared

      …and the award for the dumbest comment goes to East2West.

  5. DCharlie

    The subsidiary entity under the Tata Group, which will own AI is Talace Pvt Ltd. In other news, Tata Motors is also finalising deals to acquire all of the Ford manufacturing facilities in India as Ford is exiting the Indian market after their spectacular failure.

  6. Kent

    Just to add another detail. Although the government owned the airline since the 50s, services were largely managed by the Tatas as late as the 80s. Having flown with them significantly in the 70s, 80s and the early 90s, the level of comfort, luxury and service remains unmatched today (I’m not referring to the evolution of the hard product ofc). Incidentally, I can say the same for PIA in those times. SQ and EK are...

    Just to add another detail. Although the government owned the airline since the 50s, services were largely managed by the Tatas as late as the 80s. Having flown with them significantly in the 70s, 80s and the early 90s, the level of comfort, luxury and service remains unmatched today (I’m not referring to the evolution of the hard product ofc). Incidentally, I can say the same for PIA in those times. SQ and EK are just two of the renowned airlines today such were based on the service models of AI and PIA, respectively. However, the sheer opulence and occasion remain missing today. Although the Tatas will recover the airline to profitability, the heydays of air travel will remain unmatched. Not to say that this is a bad thing since air travel in those days was more of a luxury and less accessible to the public in those days.

  7. beerandcheese

    @lucky - I love your writing, except when it comes to the business behind airlines. As multiple other readers have suggested, the Tata Group is much more than an investment but rather a multi-billion dollar conglomerate. I expect that many of your readers are fairly business savvy and read these types of articles with a critical eye. Please be more careful with your reporting on these types of subjects.

  8. Brad

    I calculate an "easy" 10-bagger for Tatas. At height of Covid worst airlines like UAL/AAL still go for 1 to 1.5x PS. So down road with 7.5 Lakh cr (or Re T) revenue assuming even if they cut lossy routes still generate 6T x low 0.5 PS would be Re 3T less 5y 1T loss. On 0.18T cost. T=Trillion rpees.

    1. Walaoabe

      Fun fact, Air India originally started as Tata airlines, which was eventually acquired by the India government. It's basically homecoming for Air India.

  9. Luke

    Wonder about the timing, as it was just announced yesterday that India is about to reopen for foreign citizens on tourist visas starting from October 15th, so business on AI might really pickup soon (Along to an extent with ME3, TK, etc)

  10. Weymar Osborne

    An update to the cabins is desperately needed. 2-2-2 Business Class on their newest gen planes and 2-3-2 on their furthest routes is woefully uncompetitive.

  11. Andy

    Tata is probably the only feasible option. The issue with AI is not only government ownership, but also heavy handed regulation. This goes as far as fuel in India. Acquiring AI will not resolve this, but Tata are probably the only ones who can potentially do it.

  12. EBWaa

    I’ve heard good things about Vistara and I’ve had some excellent experiences at Taj hotels so hopefully their experience in hospitality and running an airline will help them turn AI around. They have a lot of potential with competent management, though I imagine it will take some time to overcome residual skepticism.

  13. Kent

    Just for you info - here are a few (still not exhaustive) other things the Tata Group owns: TCS (the world’s largest IT consultancy), Jaguar, Land Rover, Tata Steel (largest steel company), Taj & IHCL Luxury Hotels, Vistara, Air India, Tata Aerospace, Tetley, Tata Salt, Titan Watches, Westside Shopping, Tata Chemicals, Tata Motors (fifth largest automobile company) and finally, Tata Sons. The last is their investment arm. The company hires around 900,000 people globally and...

    Just for you info - here are a few (still not exhaustive) other things the Tata Group owns: TCS (the world’s largest IT consultancy), Jaguar, Land Rover, Tata Steel (largest steel company), Taj & IHCL Luxury Hotels, Vistara, Air India, Tata Aerospace, Tetley, Tata Salt, Titan Watches, Westside Shopping, Tata Chemicals, Tata Motors (fifth largest automobile company) and finally, Tata Sons. The last is their investment arm. The company hires around 900,000 people globally and had revenues exceeding $101Bn last year. They market cap exceeds $250Bn. Just wanted to give context into who the Tatas are.

  14. Sarjak

    As a 90+ year old who has flown Air India before it was taken over by the Govt, the airlines was super luxurious for those times and the airlines was snatched from them for purely political reasons which started Air India's downfall once it came under Govt management. I am really happy to see it go back to the TATA group. Will be an added long-distance quality option from India.

    1. henare

      uh, in case you haven't noticed, no airline operates that way anymore.

  15. Ole

    Ben, Tata group is alot more than just an investment company. They are a giant conglomerate, from Salt to Satellite and everything in between. They even own the Taj group of Hotels. So, I really hope you update the post to reflect the standing of Tatas. It is one of the largest private employers in UK.

    Personally, I was hoping for Tatas to win and I am glad they did. I think if there is...

    Ben, Tata group is alot more than just an investment company. They are a giant conglomerate, from Salt to Satellite and everything in between. They even own the Taj group of Hotels. So, I really hope you update the post to reflect the standing of Tatas. It is one of the largest private employers in UK.

    Personally, I was hoping for Tatas to win and I am glad they did. I think if there is one company who can turn AI around, it’s them. They have past experience of turning around businesses - Jaguar and Land Rover being the prime example. Hoping for glory days of AI to return.

  16. Mike

    @Emily and @Gurl are on point, although I am not a fan of accusing you of being Shoddy. It's your blog. Write it as you see it.

    To understand why there are so many national airlines struggling and why they don't go away you need to consider many factors and they have nothing at all to do with running an airline efficiently or profitably. There is no way India, a country with 1.3 billion...

    @Emily and @Gurl are on point, although I am not a fan of accusing you of being Shoddy. It's your blog. Write it as you see it.

    To understand why there are so many national airlines struggling and why they don't go away you need to consider many factors and they have nothing at all to do with running an airline efficiently or profitably. There is no way India, a country with 1.3 billion people is not going to be sure Air India is flying and continues to fly and that if not the government controlling it, an Indian company, such as Tata is at the helm. It is a matter of prestige, national pride and national identity. India for many reasons needs to ensure it controls the throttles on the airline to be sure it services the government's needs and those communities in India which need to be served for political reasons or just because. The US has EAS service. India has a different form of that - keep AI running. Moreover, the 8,000 employees plus the contractors represent a form of transfer payment employment program by the Government and these jobs are seen as and used as political patronage. The employee constituency is important, just like it is in most countries. Look what the US government did for their airlines. Geopolitics plays into this. As long as PIA is flying AI will be flying that is for certain.

    Hopefully Tata drove a hard bargain. They are one of the few Indian companies who would do this and I assume that was part of their leverage along with the fact that they are a proud Indian company who also want to see AI continue to fly. Off loading AI allows the government to insulate itself from the service/performance issues and to a degree financial issues. In short they can, for a time, blame someone else.

    The Italian and South African Governments do the same thing. Alitalia and South African will never go away. The governments will not allow it. They do it a bit differently, but its the same overall effect. The Italian dreamed up a process whereby the washed Alitalia through a remake to then be able to wink at the EU and say they didn't prop-up their national airline. The South African Government washed their airline through restructuring, but in the end it flying again.

  17. Guri S

    As an ex-Indian citizen, I have to state that Air India has been poorly run and has a culture that does not want to exceed.

    They are comfortable with a flying plane. My last flight was decade ago between SIN and Bombay and the interior of the cabin had the good old duct tape doing its magic.

    I have flown AI might be 4 times in my as many decades of flying.

    ...

    As an ex-Indian citizen, I have to state that Air India has been poorly run and has a culture that does not want to exceed.

    They are comfortable with a flying plane. My last flight was decade ago between SIN and Bombay and the interior of the cabin had the good old duct tape doing its magic.

    I have flown AI might be 4 times in my as many decades of flying.

    I rather fly Vistara or SIA than fly AI.

    I hope and sincerely hope that Tata group can create magic out of this.

    On a side note:
    A small Japanese cafe in Ubud has a bunch of AI postcards in their nicely decorated toilet. The maharaja lives on in Ubud.

  18. Emily

    @Lucky - this is really shoddy bit of reporting. First, the TATA Group is not merely an investment firm. It is India’s most renowned industrial corporation with huge breadth and diversity in its operations. Saying that the Tata Group is an investment firm is akin to saying that GE is a media firm. JMD Tata founded Air India - the world’s first fully turbojet airline back in its days.

    If there was a company...

    @Lucky - this is really shoddy bit of reporting. First, the TATA Group is not merely an investment firm. It is India’s most renowned industrial corporation with huge breadth and diversity in its operations. Saying that the Tata Group is an investment firm is akin to saying that GE is a media firm. JMD Tata founded Air India - the world’s first fully turbojet airline back in its days.

    If there was a company that would ultimately acquire AI, it has to be the Tatas. These talks have been conducted behind hushed doors for over five months now. It is only today that they decided to go public with it. So not really a surprise I think.

    Finally, although I don’t agree with the business model, AI plays a vital role to the Indian citizens and the government. It was never intended to be a profit making venture - if you look back to the original values when the govt took it over. In some ways, the intention of AI was to make flying a common experience for Indians. I’d say it has succeeded in doing that spectacularly.

    This is a great move by the Tatas in taking advantage of a major brand and AI’s international route network while providing growing domestic connectivity through Vistara and to some extent, Air Asia.

    1. Kimshep

      Agree with everything you've stated above, Emily - though TATA is not infallible as an owner / investor. Many here would not realise it, but TATA bought Jaguar Motors from Ford a number of years ago. TATA persevered with Jaguar for quite some time improving the product but ultimately threw in the towel and sold Jaguar off to its present owners.
      Whilst there is an emotional and obvious lineal attachment for TATA in 'reclaiming'...

      Agree with everything you've stated above, Emily - though TATA is not infallible as an owner / investor. Many here would not realise it, but TATA bought Jaguar Motors from Ford a number of years ago. TATA persevered with Jaguar for quite some time improving the product but ultimately threw in the towel and sold Jaguar off to its present owners.
      Whilst there is an emotional and obvious lineal attachment for TATA in 'reclaiming' its lost child, one would hope that there is that little bit of 'extra' effort put into rehabilitating Air India while restoring some of its previous glory.

    2. Matthew Ballard

      Tata still owns Jaguar. They re-organized the structure of the business to integrate it more with Land Rover, but Tata is still the parent company.

  19. Vir

    Tata group owns 51% of Vistara, the other 49% is owned by Singapore Airlines. Most AV geek would know that SIA model their premium class after Air India from the glory days. If AI can come close to matching SIA, it will be a monumental achievement.

  20. Paul

    My bet is they will likely have an Air India mega brand. AirAsia India will likely be fully owned by Tata by the end of the financial year and merged with Air India Express as the budget arm. Vistara will be the odd bird out but it’s ASK is still too small to be the lead one. Plus, why go through all this to put this under Vistara? It’s like a love song, the boy finally gets his girl back.

  21. Gaurav

    They also own the Taj group of hotels. Hopefully they're able to make this a viable investment. Getting public sector employees on board with the new mission will probably be the biggest challenge.

    1. sam proton

      To be honest, Indian govt has been playing hardball with govt employees...recent corporatisation of Ordinance Factories would have been impossible in previous governments, due to the sheer size of the employee union..But this govt is different as they have so much popular mandate, they just went ahead and brought an ordinance to ban all kinds of protest or strike activity and corpotarized a mega organization of the government having 200+ years of history. It was...

      To be honest, Indian govt has been playing hardball with govt employees...recent corporatisation of Ordinance Factories would have been impossible in previous governments, due to the sheer size of the employee union..But this govt is different as they have so much popular mandate, they just went ahead and brought an ordinance to ban all kinds of protest or strike activity and corpotarized a mega organization of the government having 200+ years of history. It was long due and a step towards right direction, but how effective it will be , only future can tell.
      Similar fate awaits Air India employees. Either shut up and get on with the program or get kicked to the curb.

  22. edgar

    In the 70s, Air India was having real class and flying first class was indeed a Royal Maharajah experience. All of that was due to the management by the Tata group. Once it went to the government, it slipped down and became one of the worst airlines there. I just hope it regains the confidence of travellers

  23. AG

    Back in the day, the Air India 747 was the hottest ticket in the sky. AV geeks used to be crazy about the experience. There are some youtube videos and I was amazed to see the kind of atmosphere in-flight. It was like an amazing exotic party in the sky with amazing food and a riot of colours. There was one avgeek (probably 70-something now) who recently recreated the experience to celebrate a birthday or something!

  24. Vijay

    A quick read about the history of Air India would make it obvious that this is also a bit of an emotional purchase for the Tata Group. They started Air India in 1932, it was nationalised in 1953 but Tata continued to run it until 1978 when the then government took over completely and started the downhill slide.

  25. YP

    Imagine running an airline like DMV, that's how it is right now. Ofcourse there are some good employees too. Its about damn time to privatize Air India!

  26. Mike

    Given that India has over 1 billion people and AirIndia is the national carrier and a StarAlliance member, this seems like a deal. If they can marginally turn it around (might be tough given the corruption in India), this might be a huge victory.

  27. Tom

    It's a political ploy. The TATA Group is rescuing the Indian Government from this liability and manifesting itself as one of the most powerful Indian firms.

  28. Sean M.

    For the record it wasn't SpiceJet bidding but rather the majority shareholder of SpiceJet bidding in his personal capacity.

    1. John

      OMG! SMH. TBH. IDKT. AI+UK=OMG!! BFN. xoxo

  29. Amol

    Ben, I hope you go more into the history of Air India. JRD Tata was the one who founded the airline before calling it Air India and before it was nationalized. My grandparents spoke wonders of what Air India’s service was like 50-60 years ago. Hopefully the new Tata can bring it back to what it sounded to be.

  30. Pt

    Just a fyi...the Tata group founded "Air india".

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Cody Shah

Few things to point out 1. Tata is one of the largest conglomerate in the world owning, Jaguars and Range Rover, tata Starbucks, salt, tea, steel (top 5 in the world), TCS (one of the largest IT company), Taj hotels, Titan watches, Tanishq gold to name a few. 2. Tata is acquiring 2 division, not 1 Air India (Merged Airline of Air India and Indian Airlines) - premium airline AI express - low cost airlines of Govt. It is getting landing spots at Military airports or places where there are no airport structures yet. 3. Vistara has been Delhi based airline. Whereas Air India has base in all the metro cities of India 4. Tata owns airline catering unit Taj Sats which will cater to all. Airlines 5. Tata has joint venture with Starbucks and was serving Starbucks food in air before pandemic. I wouldn't be surprised if that is extended to Air India. 6. Vistara is joint venture between Tata and Singapore airline. Both Air India and Singapore Airlines are star alliance. Now its upto Singapore Airline and Govt of India if they are allowed to merge Vistara with Air India or not. Will Singapore increase it's stake or not will decide future of all 3 airlines. Singapore just recorded massive net loss and got govt funds. Will it use that money to increase thier stakes in India? 7. New ceo will likely be former top executive of Singapore or Silk air. While scoot people may join Ai Express side.

beerandcheese

@lucky - I love your writing, except when it comes to the business behind airlines. As multiple other readers have suggested, the Tata Group is much more than an investment but rather a multi-billion dollar conglomerate. I expect that many of your readers are fairly business savvy and read these types of articles with a critical eye. Please be more careful with your reporting on these types of subjects.

Mike

@Emily and @Gurl are on point, although I am not a fan of accusing you of being Shoddy. It's your blog. Write it as you see it. To understand why there are so many national airlines struggling and why they don't go away you need to consider many factors and they have nothing at all to do with running an airline efficiently or profitably. There is no way India, a country with 1.3 billion people is not going to be sure Air India is flying and continues to fly and that if not the government controlling it, an Indian company, such as Tata is at the helm. It is a matter of prestige, national pride and national identity. India for many reasons needs to ensure it controls the throttles on the airline to be sure it services the government's needs and those communities in India which need to be served for political reasons or just because. The US has EAS service. India has a different form of that - keep AI running. Moreover, the 8,000 employees plus the contractors represent a form of transfer payment employment program by the Government and these jobs are seen as and used as political patronage. The employee constituency is important, just like it is in most countries. Look what the US government did for their airlines. Geopolitics plays into this. As long as PIA is flying AI will be flying that is for certain. Hopefully Tata drove a hard bargain. They are one of the few Indian companies who would do this and I assume that was part of their leverage along with the fact that they are a proud Indian company who also want to see AI continue to fly. Off loading AI allows the government to insulate itself from the service/performance issues and to a degree financial issues. In short they can, for a time, blame someone else. The Italian and South African Governments do the same thing. Alitalia and South African will never go away. The governments will not allow it. They do it a bit differently, but its the same overall effect. The Italian dreamed up a process whereby the washed Alitalia through a remake to then be able to wink at the EU and say they didn't prop-up their national airline. The South African Government washed their airline through restructuring, but in the end it flying again.

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