Open Forum
New Delhi, 20 October
2021
Tata’s Air
India
FLYING TO
NEW HEIGHTS?
By Dhurjati Mukherjee
There has been much
discussion and debate on the question of disinvestment of public sector organisations
with accusations of the government handing over viable units to the private
sector. But the case is different with Air India, an ailing entity, which has
rightly been handed over to the Tate group, which commands the maximum
credibility among all corporate groups in India. The transaction, which is
expected to be completed by December this year, marks a return to the
aggressive privatisation plan of Prime Minister Narendra Modi.
Air India is the
country’s first privatisation after almost 19 years and this sends a powerful
signal that India is ready to do business sensibly. There is definitely a ray
of hope as the return of Air India to its original home is a momentous event.
Experts believe that the organisation may become viable in the not-too-distant
future with the expertise and management of the group. As Ratan Tata, Chairman
Emeritus of Tata Sons aptly pointed out that though considerable effort would
be needed to rebuild Air India, it will hopefully provide a very strong market
opportunity to the group’s presence in the aviation
sector.
Though the Rs 18,000
crore bid at which Tata Sons won Air India, is just the beginning of its
expenditure on aviation, it will need to allocate more resources to sustain
aviation and revitalise the company. Obviously, the merger of Vistara and Air
Asia India with Air India is a certainty but it is believed that the
integration of multiple aviation units will be possible only after that.
The Air India
acquisition comes with a provision restricting the new owner from transferring
its shares directly or indirectly to any person for one year from the date of
closing the transaction. A merger is, however, allowed provided the new owner
holds more than 51 per cent during the one year lock-in period. Meanwhile, the
dynamics of Tata’s aviation business changed with the acquisition of Malaysian
partner’s 33 per cent share in Air Asia India, increasing its holding to 84 per
cent. Now Tata Sons has to buy the remaining 16 per cent of Air Asia by next
year.
The Tatas will now
have five brands – Air India, Air India Express, Indian Airlines, Air Asia
India and Vistara – which, it is understood would be used for different
segments. It will be tempting to consolidate all these under a single or double
brand. It is expected and there are enough indications that the Tata Group
would leave no stone unturned and utilise all its marketing skills to make Air
India viable in a year or so.
As is well known,
over the years, the loss making, cash strapped airline has got a negative
image. In fact, Air India’s accumulated losses amount to almost Rs 84,000 crore
and the government was taking a daily hit of around Rs 20 crore. But aviation
experts feel that since two-thirds of AI’s revenue comes from international
markets such as North America, Europe and West Asia, there is great potential
and judicious marketing could increase profits. In fact, the airline’s frequent
flyer programme has more than three million members.
Since the company’s
debt has been taken over by the government, it will be easier for the
turnaround. More than 90 per cent of the losses were due to interest and
depreciation. In recent years, Air India was successful in making an operating
profit. But there can be no denying that the Tatas will have to infuse equity,
estimated by experts to be a few billion dollars, to ensure that the turnaround
takes place at the earliest.
The domestic business
is also destined to grow in a big way as more and more people from middle
income sections prefer to travel by air. With costs being competitive and air
travel costs comparable to AC-II train fares, the preference for the latter
will increase in the coming years.
The Tatas have to be competitive
in the domestic segment with Air India Express and Vistara with IndiGo
cornering around 57 per cent of the market share. However, Air India would be
preferred by Indians for international travel. With competitive rates and big
carriers, it is expected that Air India would find its place as a comfortable
and cheap international carrier.
There is enough
justification in this sell-off as the government failed to make Air India
viable and there was a necessity for a country of India’s stature to have a
viable and vibrant national carrier. Experts, not just in India but the world
over, would now look to the Tata Group for its expertise and high levels of
management skills to turn around Air India and bring back its prestige.
If the revival of Air
India becomes possible, say in the coming two years or so, the Tatas would
prove how a private sector can bring about miracles. But there are many
obstacles. Though in recent years, employee numbers are a little over 12,000 –
out of which over 8999 are permanent and 4000 contractual staff -- this has to
be brought down. Fortunately the staff is mostly over 55 years of age and they
may accept retirement after a year. However, it may be mentioned that employees
have expressed concern over the terms of agreement that say the Tatas have the
obligation to retain them for just a year and after that, some of them will
take Voluntary Retirement Service (VRS).
All said and done,
the sell-off of Air India has been welcomed by one and all because of the
prospect of the organisational being handled effectively through better and
efficient governance. This experiment is bound to succeed as the Tatas have
wide expertise and experience in the aviation sector. This decision should have
been taken long back and the inordinate delay only added to the losses of the
government. Thus prompt decision making is necessary in such cases as Air India
privatisation, say three to four years back, could have cut down government
losses and helped the exchequer. It needs to be reiterated that a healthy
aviation sector is vital for the growth of India’s tourism and hotel
industry.--- INFA
(Copyright, India
News & Feature Alliance)
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