Air India – Sale deal is done, but how to make the airlines profitable?

download 26 Air India   Sale deal is done, but how to make the airlines profitable?

It made good press that Maharajah was back with the Tatas. After all, Air India had been Tata Airlines between 1932 and 1948 till it was nationalized by the government. Air India was still run by Tatas till 1978. It has come a full circle.

Maharajah is back with Tatas

The Tata bid of Rs.18,000 crore for Air India was much better than the other bid of Ajay Singh of SpiceJet. Tatas will also take over around one-third of Air India’s debut burden of Rs.64,000 crore while the balance will be absorbed by the government. For the Tatas, it may be a good deal as they also get access to the real estate properties of Air India as well as the parking slots and landing rights owned by Air India. But above all, it will be a deal that gives a new lease of life to Air India to fly once again.

Still a bad sector to be in

All the merits do not take away from the fact that aviation is a tough sector to be in. The Tatas are entering the aviation space in a big way at the wrong time. The pandemic may have created its own set of problems but the problems are likely to persist for much longer. The accumulated losses are huge and high ATF prices are not helping. The spread between RASK and CASK has been in the negative for a long time, and is not likely to change in the immediate future. Recouping the losses and bringing it to growth is not going to be easy at all.

What is the Tata strategy?

Where exactly does Air India fit into the Tata scheme of things? Nostalgia is just a part of the whole story. The real story is about the synergies that Air India offers. The Tatas have long coveted a leadership position in aviation and this is their best option. For a long time, Indigo has dominated the Indian skies and the best way to take them on would via a solid market share. If Tatas combine Air India, Vistara and Air Asia, they would have a market share of over 25%. That positions Tatas in a much better bracket as serious players in aviation with a low-cost plus full-service flying proposition.

Good news; divestment program

Above all, it is a good boost for the overall divestment program, or strategic sale program as it is called. There have been several attempts in the past to hive off Air India but had got stuck due to lack of interest or a very steep price. The government is now being pragmatic about the whole issue and has fixed the pricing and asset sharing such that it makes sense to the bidder. This could also provide a template to DIPAM for complex strategic sale deals that the government may contemplate in the future. The government has to make a success of the divestment plan if it has to reach targeted budget deficit for the current year. To that extent, the Air India scheme will surely provide a boost to all parties involved in the deal.

 

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