Can the Tatas save Air India?

Wings clipped just before taking flight.
Wings clipped just before taking flight.
Image: AP Photo/ Mustafa Quraishi
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The prospects for Air India’s privatisation seem to be going from bad to worse.

Days after India’s largest airline IndiGo declared that it lacks the capability to turn the country’s state-run airline around, the private player’s closest competitor by market share, Jet Airways, has pulled out of the race.

“We welcome the government move to privatise Air India. It is a bold step. However, considering the terms of offer in the information memorandum and based on our review, we are not participating in the process,” Amit Agarwal, Jet Airways’ deputy CEO, told the Press Trust of India news agency on April 10.

Earlier this year, Ajay Singh, chairman of low-cost carrier SpiceJet, had also told CNBC-TV18 that it is too small to bid for the Maharajah.

With three heavyweights out, few aviation space players remain in the race for Air India. And all eyes are now on the airline’s founder itself: the Tata Group.

Last year, Tata Sons chairman N Chandrasekharan had made his group’s interest known when he said it would “definitely look” at buying Air India.

“I do not think any player in India, apart from the Tata group, has the management ability to turn around an airline like Air India. Tata also has the strategic leadership, financial foresight, and consumer connect to drive traffic,” said Mark Martin, head of aviation consultancy firm Martin Consulting. The group, he said, can either individually bid for Air India, or form a consortium with a foreign airline.

Tata Sons is yet to respond to an email query sent by Quartz.

The Tata group, India’s largest diversified conglomerate, had total revenues of around Rs673,350 crore ($100 billion) as of financial year 2017. It forayed into aviation in the 1930s with the launch of Tata Airlines, which was later nationalised and rebranded as Air India. In 2014, it partnered with AirAsia Behrad to launch AirAsia India. A year later, its joint venture with Singapore airlines, Vistara, took flight.

If the Tatas, too, opt out, the Narendra Modi government will have to look for alternatives.

One option could be one or more foreign airlines teaming up with Indian financiers, Martin explained. “Airlines like Qatar airways can partner with private equity firms, for instance, and bid for Air India,” he said. A foreign airline can only have up to a 49% stake in Air India, with ownership and effective control of the airline resting with an Indian entity.

However, some experts believe the sale terms need to be overhauled.

Air India pvtn is great move by Modi sarkar. Long overdue. Unfortunate to see India’s Big 2 dropping out at the EoI stage itself. Serious corrections required in bid conditions. @sureshpprabhu @jayantsinha @narendramodi @MoCA_GoI https://t.co/VHXezMxykl

— Amber Dubey (@amberdubey123) April 10, 2018

The government may have to reconsider separating the domestic operations from the ground-handling services and international operations, Dhiraj Mathur, partner at PwC India said.

“Additionally, low-cost players do not necessarily want to enter the full-service airline business,” Mathur said. “So, the government will likely have to rejig the terms if it wants Indian players to participate.”