Tata’s Acquisition of Air India – A Strategic or an Emotional Decision?

Dr M.Rahman, Associate Professor, Galgotias University

The salt-to-software business conglomerate Tata Sons acquired ‘Air India’ 68 years after it was snatched by the Government of India during the nationalization process in 1953. On 8^th Oct 2021, the Talace Private Limited, a subsidiary of Tata Sons won the bid for acquiring 100 per cent shareholding in the state-run national carrier Air India for Rs 18,000 crores. The Tata’s acquisition of Air India has given a new life to the airline struggling to survive for the last few years.

There were two bidders (qualifying the minimum criteria set by the govt) — Talace (Tata Sons) and a consortium led by SpiceJet chief Ajay Singh in the race to buy Air India. The government had set a reserve price of Rs 12,906 crore for the struggling airlines. The Tata Sons’ bid value was ₹18,000 crore, pretty higher than the reserve price as well as the second bidder’s bid value of  ₹15,100 crore.

Over the past few years, the Government of India was desperate to disinvest its stake in the struggling national airlines with a huge debt of Rs 61,562 crores as of Aug 31, 2021 and a loss of Rs 20 crores per day. The airline has been going through losses every year since its merger with Indian Airlines on 24^th Aug 2007. Both the public sector airlines were merged to facilitate better synergies of their resources i.e. aircraft, men, material and machine. However, it failed poorly in creating synergies.

Now, a logical question comes in minds of many persons – Whether Tata’s acquision of loss making Air India is a strategic or an emotional decision? The following paragraphs attempt to answer the above key question.

Tata’s acquisition of Air India – Is the decision Strategic?

The Tata group has already been present in airlines business with two brands- Air Asia (a low cost carrier) and Vistara (a full service carrier). Tata Sons owns 84% share in Air Asia which has a market share of 5.2%, and 51% stake in Vistara which has a market share of 8.3%.  At present, all airlines in Indian sky are incurring losses as shown in the pic (below).

With Air India (market share of 13.2%) in its bag, the combined market share of Tata controlled airlines comes at 26.7 per cent. It will emerge as a challenging second-largest domestic airline after IndiGo, if Tata group consolidate the operations of all three airlines successfully. According to some news channels, Tata group is already planning of a consolidation of the airlines so as to achieve operationally profitable.

Post the acquisition, Tatas will own 100 per cent stake in Air India as also 100 per cent in its subsidiary Air India Express (low cost carrier) and 50 per cent 50 per cent stake in ground handling company AISATS.

In terms of fleet, Tata will get Air India’s 117 wide-body and narrow body aircrafts and Air India Express’s 24. A significant number of these aircrafts are owned by Air India. It will also get to operate these aircraft on over 4,000 domestic and 1,800 international routes.Moreover, Air India’s frequent flyer programme has more than three million members.

Air India will provide Tata a unique and attractive international footprint with lucrative slots. More than 2/3rd of Air India’s consolidated revenues comes from international market. Air India  is the number one player from India in the international market having a strong footprint across geographies like North America, Europe and Middle East with attractive slots and bilateral rights.

Besides the above, the conglomerate will get a total talent pool of Air India and Air India Express which stands at 13,500 including both permanent and contractual employees. The only challenge for Tata is to maximize their use.

So, in my opinion, Tata’s acquisition of Air India is a strategic decision as this would help Tata group in gaining competitive advantage in the airlines business and may rule the market in future.

Tata’s acquisition of Air India – Is the decision Emotional?

The Tata’s acquisition of Air India is an emotional moment for the Tata group because this airline was launched by JRD Tata as Tata Air Services in 1932 and JRD himself flew its first single-engine carrying air mail from Karachi to Bombay. Later, the airline launched its first domestic flight from Bombay to Trivandrum with a six-seater plane. Thereafter, it started international air services and JRD had dream of making it much bigger, better.

But, things changed after independence when the Indian government started nationalisation process and went ahead with its plans to nationalise many companies, which incidentally involved Tata Airlines, too. In 1953, the government acquired 100% stake in Air India and took it out of Tata’s control. JRD expressed his anguish that it was a planned conspiracy to suppress private civil aviation, particularly the Tatas’ air services. Nehru reassured him of no such intentions and offered the chairmanship of Air India and a directorship on the board of Indian Airlines. JRD accepted the offer and remained chairman of Air India till 1978.



Now, the return of Air India to the Tata group is quite emotional as it can be reflected from the above tweet ’Welcome back, Air India’ of Ratan Tata minutes after winning the bid.

So, in my opinion the decision regarding Tata’s acquisition of Air India has an emotional element. It could be also seen in the Tata’s bid amount of Rs 18,000 cr that was much higher than the reserve price of Rs 12,906 set by the government as well as much ahead of the bid amount of the second bidder by Rs 3,000 crores. It justifies the Tata’s strong willingness to get Air India back after 68 years. It’s like winning back a precious item snatched by someone ruthlessly by paying a hefty amont.

Hence, in my opinion the Tata Son’s decision to acquire Air India has an emotional dimension, but it is more of a thoughtful, strategic decision to give a tough competition to the leader IndiGo and rule the Indian aviation sector in the long run.

References

https://timesofindia.indiatimes.com/business/india-business/indigo-lost-rs-16-crore-daily-in-covid-ravaged-fy-21-with-a-net-loss-at-rs-5806-crore/articleshow/83264066.cms

https://economictimes.indiatimes.com/markets/stocks/earnings/spicejet-fy21-loss-at-rs-998-crore-carrier-to-raise-rs-2500-crore/articleshow/83993463.cms?from=mdr

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