Air India whets appetite of Tatas; here's why business house is natural fit for airline

Ajay AwtaneyUpdated: Thursday, September 16, 2021, 12:10 PM IST
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As a precursor to Air India sale, the government in 2019 had set up a special purpose vehicle - Air India Assets Holding Ltd (AIAHL) - for transfer of debt and non-core assets of the Air India group/ Representational image | File photo

September has brought the good news everyone hoped to hear: There are financial bids in place for Air India. The airline attracted zero interest in 2017 when the last time a privatization of the airline was attempted. This time around, it has received a bid from the Tatas at Bombay House, and from SpiceJet boss Ajay Singh as well, although it is going to be in his personal capacity.

The new owner of the airline will inherit a global brand and a pool of about 2,000 engineers and 1,500 pilots, and a membership of Star Alliance. Air India had been unable to capitalize on the increase in business it could have received from joining Star Alliance so far; so it could go on to do that now.

Huge investment needed to turnaround ailing maharaja

But there will be a huge investment required after paying the government to upgrade the airline, and this is where the task of turning around the airline will begin. It will cost millions of dollars to fix the aircraft and get them in shape for their next innings. Apart from that, the new owner will have to deal with the many contracts at the airline which will have to be renegotiated to rationalize costs.

One will wonder then, why is anyone interested in Air India? Air India is of interest to everyone, purely because of the heft the airline carries in India’s international connectivity. You may or may not see a private carrier in many airports around the globe, but chances are, if it is important, Air India will be there.

With its fleet of 27 Boeing 787-8s, 13 Boeing 777-300ERs, 3 Boeing 777-200LRs, Air India has been the sole Indian carrier connecting from India to the US non-stop at five airports in USA, and the only airline flying between India and Australia, amongst many other important routes they serve. There are many other routes where Air India has vintage.

Why House of Tatas is a natural fit for Air India

So far, the natural fit for the airline seems to be the house of Tatas, who have done extensive due diligence on the airline before submitting their bid. Air India could be amalgamated with their full-service brand Vistara to make an Indian airline of a global scale. Air India Express, the low-cost, primarily international carrier could be amalgamated with AirAsia India, which is a low-cost carrier under the Tata Sons flag, with other partner AirAsia almost out of the partnership.

The Tatas already enjoy a great relationship with Singapore Airlines and their ground handling unit SATS, which is why AI-SATS would not need much tinkering to start with. The Centaur Hotel, which has a strategic location, could be handed out to the Taj Hotels business to upgrade and run.

An airline business is not for the faint hearted, as the turmoil in the sector caused due to COVID-19 came to show us. It will require deep pockets and a long-term commitment to turn around the business and bring it to its true potential. So, whosoever will be the eventual winner of the bid for Air India, will need to be truly determined to deal with the setbacks along the way to bring Air India back to its glory. After all, the path is littered with case studies of failed airline divestments across the globe, with British Airways and Lufthansa being two top exceptions of note.

On its part, the Government has made some wise choices in their second attempt to sell the airline, and have been flexible so far in their approach towards the white elephant in the room, which we lovingly know as the Maharajah. I hope this time around, they are truly able to exit the aviation business.

(Ajay Awtaney writes about Indian Aviation on livefromalounge.com and tweets from @LiveFromALounge)

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