Tata Group might make a formal bid for the beleaguered national airline Air India by the end of this month. The company has reportedly started its due diligence ahead of its bid. Funding and financial discussions would take place once the due diligence process is over. Tata Group is currently focussing on the viability of the deal.
Company officials said it is too early to comment on funding or the possible business structure at this point. However, they said that there is no plan to bring in a financial partner. "Tata Sons is currently evaluating the proposal and will consider a bid after due consideration and at the appropriate time. There is no plan to bring in a financial partner," said a Tata Sons spokesperson, as mentioned in a report in The Economic Times.
The conglomerate has engaged top legal firms to see through the due diligence process. Tata Group already has two aviation joint ventures -- AirAsia India where it owns 51 per cent stake and Vistara where it has 49 per cent shareholding.
Moreover, there also have been reports that the group is planning to merge AirAsia India and Air India into a single entity after buying out JV partner Tony Fernandes. Fernandes' AirAsia Berhad is the partner in AirAsia India.
Other airlines that have shown interest in the national carrier want to carve out Air India Express so that they are able to bid for the low-cost airline, as mentioned in the daily. Nevertheless, so far, the entire airline is being assessed as one entity, including the real estate assets.
Tata Group would have to navigate a complicated legal procedure if they want to go ahead with the deal. There could be potential non-compete arrangements with Singapore Airlines that is the strategic partner in Vistara, conflicts of interest, and approvals would be required from the Competition Commission of India since the conglomerate would become the dominant player in the Indian aviation sector.
Bidders would have to absorb Rs 23,286.50 crore of debt owed by Air India. Its total debt stood at Rs 58,531.93 crore as on March 31, 2019. The government plans to reduce the debt and offer 100 per cent stake to the bidders. The remaining debt amount would be transferred to special purpose vehicle Air India Assets Holding Ltd.
While the airline enjoys privileges in terms of route allocations and airport infrastructure as it is the national airline, Air India would lose all the privileges once it becomes private.