The Tata Group intends to bid for state-run Air India, an acquisition that would make it one of the biggest players in India’s growing aviation sector.
The government revamped the bidding parameters for Air India in late October and announced it will be selling the carrier at enterprise value, which will include both debt and equity.
The airline was started by Tata Group doyen JRD Tata as Tata Airlines in 1932. It was converted to a public company in 1946 and renamed Air India when it was acquired by the government in 1953.
The 152-year-old Tata Group is among India’s largest business houses with interests ranging from software, steel, automobile, chemicals and financial services around the world.
Sources confirmed the company was due to put in its bid just before the close of business on Monday, the last bidding day, though the company declined to comment. An acquisition would give Tatas a dominant domestic market share and a head-start to compete globally in the post-Covid era.
The group already owns 51% stakes each in AirAsia and Air Vistara. It runs Air Asia in partnership with AirAsia Investment Ltd (Malaysia) and Air Vistara in partnership with Singapore Airlines. Both the overseas partners own 49% in the respective carriers.
The government has not yet named the bidders. Local reports indicated the US-based fund Interups Inc and a consortium of more than 200 employees of the national carrier also were poised to place bids.
The next stage of the bidding begins on December 28. Reports have already speculated that if the Tata Group wins, it may merge Air India with one of its existing airlines to achieve efficiency gains through merged staffs and operations.
As of September, the low-cost carrier Indigo Airlines had 57% of the domestic market, while Air Asia and Vistara had 13% between them. Air India has around 10% of the market, according to the Directorate General of Civil Aviation of India.
Monday was set as the last date for expressions of interest before the government begins a formal process of selling off its 100% stake in the beleaguered airline.
Air India is widely seen as inefficient and poorly run by indifferent employees, but it still flies half of all international traffic among Indian airlines and 18.4% of the Indian market if overseas airlines are included.
India has one of the world’s fastest-growing aviation sectors. The International Air Transport Association (IATA) predicts India will surpass the United Kingdom by 2025 and take the world’s third spot as China passes the United States to take the top.
Air India moves much of that passenger load. As of November last year, Air India flew to 98 destinations, 56 of which were domestic, with 2,712 departures a week and 22 million passengers. The sector employs more than one million people and contributes $30 billion each year to India’s gross domestic product (GDP).
With more than 13,300 employees, including 1,880 pilots and about 4,000 crew attendants, Air India has accumulated big losses over the years. Its total liabilities as of March 2019 were 523 billion rupees ($7.1 billion) and debt at 232 billion rupees ($315 billion). Current assets, loans and advances amounted to 202 billion rupees ($2.75 billion).
Aviation fuel costs in India are among the highest in the world and were seen by industry experts as among the main causes for the collapse of Kingfisher Airlines in 2012 and Jet Airways in 2019, which were unable to service their own high debts. Airport charges and other taxes on passengers have also risen significantly over the past few years.
“The number of passengers flown by Indian airlines has more than doubled over the past seven years, compared with just 6% increase in railway passengers,’’ according to an IATA report. “We expect air passengers in numbers to, and from, and within India, to increase by 3.3 times over the next 20 years to more than 500 million passenger journeys per year.’’
Still, the winning bidder for Air India will face various structural hurdles to turning profits.
According to aviation experts, the sector could get severely choked by a lack of large-capacity airports across the country. The bulk of air traffic is between Delhi and Mumbai, the fifth-busiest air route globally after Jeju-Seoul, Sapporo-Tokyo, Sydney-Melbourne and Fukuoka-Tokyo.
Passengers often complain of severe congestion at India’s airports, with domestic flights often spending up to half the travel time in the air waiting for a runway slot to land and then get an empty bay to offload passengers.
Besides Delhi and Mumbai, other airports also require rapid facility upgrades, more passenger capacity and faster road and rail connections with city centers. A new Mumbai airport was due to open this month but could be a year late because of delays in land acquisitions.
The new airport will add capacity for 10 million passengers a year in the first phase, 25 million a year in the second phase and 35 to 60 million in the third and fourth phases up to 2032.