Air India Sale: Tata Group Bidding Strategically

Once upon a time there lived a man named Jamshed who owned a large scale business. Jamshed was in his early thirties, doing well in life and had his future plans sorted as well. So, he got married. Two years later he was blessed with a son.

His son was turned out to be an obedient child as he grew up. But, suddenly the state introduced a law that that all children residing the state will be taken in custody by the state and they can not live with their parents anymore.

Unfortunately Jamshed had to depart from his son. This wasn’t easy but the government had left no choice. After a few years, government realized that it won’t be able to take care of so many children as it lacked funds. Hence, government rolled out a scheme in which these children could be adopted. And, guess what! Jamshed adopted his own son. Tata Group is currently in a similar situation as Jamshed and trying to adopt an ailing Air India.

What’s Happening?

Government owned airline carrier Air India is currently in doldrums and government is trying hard to sell it off. In the recent budget Finance Minister Nirmala Sitharaman announced that government will sell off 100% stakes of Air India. Post this, it was being expected that companies that were interested in buying the government owned airline, will now participate more actively to finalize the deal.

In this streak, a renowned media house has reported that Tata Group and Singapore Airlines may jointly bid for Air India. In fact, it is being reported that they are strategically all set for the same. By the way, the airline which we now know as Air India was originally founded in 1932 by Tata Group and at that time it was called Tata Airlines. 

Post the Second World War, the airline was renamed as Air India as it became a public limited company. Then, post Indian independence, government acquired 49% stake in Air India in 1948. Then in the year 1953, nationalization happened (Air Corporations Act was passed) and government acquired a majority stake in the airline. And this is how a Tata Group firm founded by Mr. JRD Tata turned into a government owned company.

How is Tata Planning to Do This?

Tata Group operates Air Asia India with its Malaysian ally that holds 49% stake in the company. Besides this, the Tatas also operate ‘Vistara’ which is a joint venture between Tata Group and Singapore Airlines. In the full service space (economy as well as business class) Tata Group might attain a monopoly if this deal goes through!

N Chandrasekaran, Chairman of Tata Group has provided some clarity on this in his statement given to TOI. He says that Tata Group would not run a third airline until they merge. It is being speculated that Tata Group would sign an agreement with Air Asia chief Tony Fernandes to merge Air Asia India and AI Express, which is a fully owned subsidiary of Air India. Now, will this happen? We’ll have to wait and watch.

The Final Word

Just imagine how awkward would it be for someone to adopt one’s own child! And, this is what Tata Group is exactly going through. Air India's future is not in the best of state right now. Anyone who is willing to purchase Air India will additionally get a debt burden of around 300 billion. Still, Tata may want to fly it and probably it will be able to turn around the ailing airline. Although, it’s not that simple because of two reasons.

First, Tony Fernandes is facing a probe in Airbus bribery scandal and therefore his consent for the deal might take time, without which it’s currently impossible to move ahead. Second, the condition of the Indian airline industry is well known. The increasing losses for the entire industry is a matter of concern. So, how would things progress is just a matter of time and circumstances.

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