Major disruption is on the cards in Indian aviation as Tata Group has reportedly submitted its bid to acquire beleaguered Air India. On the last day of the bidding process, Tata Group and a consortium led by Air India's over 200 employees and Interups Inc expressed their interest in buying the national carrier. The sale process will move to the next stage, and experts believe that Tata Group has a fair chance of bagging Air India along with its subsidiary Air India Express and 50 per cent shares in ground handling unit AISATS (Air India SATS Airport Services).
It's not clear at the moment whether Tatas plan to run Air India as the third airline venture or would acquire it through Vistara or AirAsia India. However, Tata group's airline business between the three entities would top 22.9 per cent in marketshare, overtaking Spicejet (13.4 per cent market share) to emerge as India's second largest airline group after IndiGo (55.5 per cent).
Air India presently has third-largest (9.4 per cent) traffic share in the domestic markets. In comparison, Tata Group-owned airlines - AirAsia India and Vistara - were fifth and sixth largest with 7.1 per cent and 6.4 per cent market share, respectively, despite being around for 5-6 years.
"It is going to be a clean and smooth transaction. Since it's going to be a huge deal, it cannot be concluded overnight. Tatas have already done the due diligence, and I don't see any major challenges during the transition phase. Tata Group is apparently ready to take all AI employees, and they know how to work with unions. For instance, in the case of JLR acquisition, they didn't fire anybody," says Mark Martin, CEO of Martin Consulting.
Now, the only thing between Tata Group and Air India is the government's nod. As per the revised sale proposal, the government has said that they will sell the airline to who takes over the bigger debt burden of Air India. This, experts believe, sweetened the deal since the original EoI (expression of interest) floated by DIPAM (Department of Investment and Public Asset Management) in January this year, the buyer was supposed to absorb Rs 23,286.5 crore of debt, and the remaining would have been transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle created after the failed sale attempt in 2018.
Air India had a total debt of Rs 60,074 crore as on March 2019, as per EoI. The debt would have grown substantially since then as the national carrier suffered due to the curtailed operations during pandemic.
Despite running into net losses for several years, Air India was considered a competent airline when it comes to operations. To a large extent, its problems started during the UPA government when the airline was reportedly forced to buy 111 aircraft from Boeing and Airbus and give up some of its profitable routes. This was followed by a failed merger of its domestic and international operations. Since then, the airline could never recover from the debt burden.
For Tatas, Air India's acquisition can be rewarding: it gets trained and experienced staff of the airline and its ground handling division, prime domestic and international airport slots, market share and possibility of driving synergies between the national carrier and its current airlines - LCC AirAsia India and FSC Vistara.
And even though Covid has upended the international segment, both Air India and Air India Express controlled over 50 per cent of the international traffic in the January-to-March 2020 quarter. If Tata Group has submitted its bid through Vistara, which flies on international routes, the combined entity (Air India+Air India Express+Vistara) would likely lead the international aviation segment which would move Vistara up from sixth spot in January-to-March period to the numero uno position.
Since it's being reported that SIA (Singapore Airlines), which is an equity partner in Vistara, has not joined Tatas for the Air India bid, it remains to be seen what role SIA would play after the acquisition takes place.