The Tata group has been selected as the winning bidder in the national carrier Air India’s divestiture process. Tata Sons, the parent company of the Tata group, made a winning offer of Rs 18,000 crore as the Enterprise Value of Air India via its wholly owned subsidiary Talace Pvt Ltd.
Consequent to The Acquisition
Tata Group will own the following stakes after winning the bid of the national carrier:
- Air India (100%): A full-service airline operating in domestic and international markets
- Air India Express (100%): Subsidiary of Air India, Air India Express is a low-cost carrier airline that focusses on short-haul international operations especially in the Middle East market.
- Air India SATS (50%): In the joint venture Air India SATS, provides airport services on ground and cargo handling.
The Tatas will become the sole proprietors of famous trademarks such as Air India, Indian Airlines, and the Maharajah. Air India owns a significant portion of Air India and Air India Express planes. At present, Air India has a fleet of 128 wide-body and narrow-body aircraft and AIXL has a fleet of 25 narrow-body aircraft.
With a fleet of over 220 aircraft and a combined network of over 100 domestic and international destinations, the Tata group airline portfolio achieves a 25% market share, thereby placing it as the industry’s second largest operator.
The Tatas can now compete in more markets thanks to acquisitions. With AirAsia India, the low-cost segment; with Vistara-Air India, the premium sector; with Air India Express; and with other subsidiaries, the low-cost international segment; as well as ground handling and MRO. Tata Airline’s portfolio will have a monopoly in the full-service sector.
The Baggage of Air India acquisition
- Air India owes a total of Rs. 61,562 crores as of August 31, 2021, according to its financial statements. The successful bidder will assume responsibility for Rs 15,300 crore in debt.
- Air India is now losing Rs. 20 crores each day. Tata Group’s financial concerns after closure would now include existing daily losses of Rs 20 crores.
- Current government workers will continue to receive all earned benefits for another year.
- There is a five-year time limit on the transfer of eight Air India trademarks or brand names. Even after the five-year period has expired, no transfer is permitted to any foreign company.
- All of Air India’s 12,085 workers, including 8,084 permanent ones, must be retained by the bidder for the first year, and VRS shall be provided if any employees are let go.
Tata Group’s Airline Division Bleeding Cash
The Tata Group’s current airline portfolio includes Vistara and AirAsia India, a joint venture – Vistara between Tata Sons & Singapore Airlines and AirAsia India between Tata Sons and AirAsia Berhad.
According to its annual report submitted with the corporate affairs ministry, AirAsia India lost Rs 1,532 crore in 2020-21, compared to Rs 782 crore the previous year. Its sales fell 63% year on year to Rs 1,359 crore, while the company’s cumulative loss increased to Rs 3,680.34 crore.
Vistara reported a loss of Rs 1,1612 crore for the year. It has total liabilities of Rs 11,491 crore and a negative reserve and surplus of Rs 6088 crore.
As Tata Sons chairman indicated, “…we are not going to see those companies generating profits or cash at least until 2025.”
Also, as per Capa India, an aviation consulting company, Indian airlines sector are expected to incur losses of approximately $4.1 billion in FY22. The total losses for FY21 and FY22 will be about $8 billion because of this CAPA projected that the airlines would need $4.5-5.0 billion in financing to remain viable.
Tata Group May Be the Best Bidder for Air India
Post-acquisition, creating separate market groups, targeting those segments, increasing yield, driving efficiency, and reviewing the entire strategy will require time and patience capital investment.
When patience and time are needed throughout the acquisition process due to the intricacy of the operation, Tata Group are the only one that come to mind. Because of their previous acquisition track record with Tetley Tea, Corus Group plc, or JLR. The organization has shown that once committed to an investment, it can follow through.