An Air India plane on the runway in Mumbai. Photo: AFP / Himanshu Bhatt / NurPhoto

After a long-drawn process, plagued with false starts and delays, the Indian government has finally found a buyer for its ailing state-owned airline Air India.

The winning bid came from the salt-to-software conglomerate Tata Sons and it will own Air India, its budget carrier subsidiary Air India Expres and the government’s 50% stake in the ground handling firm Air India SATS Airport Services Pvt Ltd (AISATS).

The government has sent an ambitious disinvestment target of 1.75 trillion rupees (US$23.3 billion) for this fiscal year. Apart from Air India, it plans to sell Bharat Petroleum and is planning an initial public offering for the state-owned insurer Life Insurance Corporation of India.

When selling the airline, the government set a reserve price of 129 billion rupees and the Tatas made a bid of 180 billion rupees ($2.4 billion). It comprised 153 billion rupees to service Air India’s long-standing debts and payment of 27 billion rupees in cash to the government.

Air India had accumulated a debt of 615.62 billion rupees. The rest of the debt will remain with the government. Purely in terms of money, the deal does not result in as big a step towards achieving the government’s disinvestment target.

But the ailing airline was a drain on the government exchequer and its sale would reduce the government’s burden in the future. It has not made a profit since 2007. For every day that Air India remains operational, the government suffers a loss of 200 million rupees, or 7.3 billion rupees a year.

Since 2009-10, the government has spent more than 1.1 trillion rupees to either directly make up the losses or raise loans to do so.

For the Tata Group, acquiring Air India has a sentimental value, as they were the original owners of the airline when it was set up in 1932 under its former Chairman Jehangir Ratanji Dadabhoy Tata.

Bringing back the airline, which was nationalized in 1953, back to its fold is an emotional moment for the company.

On the plus side, this acquisition will make the Tatas the largest player from India on international routes and the second-largest on domestic routes. Air India also enjoys some prized slots at various international airports, landing rights and a huge fleet of 141 aircraft.

However, the salt-to-software conglomerate will have to contend with a bloated workforce. According to data furnished by the government on Friday, Air India and Air India Express had 13,500 employees.

The government has mandated that the Tata Group retain the airline’s employees for a period of one year from the close of the transaction and any retrenchment after that be done by way of a voluntary retirement scheme. It remains to be seen how the Tata Group handles this issue.

Another major challenge will be changing the culture of its workforce. The airline has been making losses for more than a decade and there was hardly any focus on running an efficient airline.

Market watchers, however, believe that combining the back-end operations of their existing airlines and using their group’s strength on automation and engineering, Tatas could help improve Air India’s efficiency. In short, the Tata Group will have to infuse a lot more funds to bring Air India out of the woods.

It also remains to be seen how the Tatas are going to integrate Air India into its existing civil aviation business. It now holds a majority stake in full-service airline Vistara (with Singapore Airlines being the other stakeholder) and Air Asia India (with Air Asia Bhd of Malaysia as minority partner).

Another factor to watch out for is how Tatas would map the future of its airlines business amid the Covid-19 pandemic. The aviation industry has been crippled by the pandemic and is yet to recover.