13 highlights
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Talace Pvt. Ltd, the Tata Sons subsidiary under which the acquisition has been done, will pay Rs 2,700 crore in cash to take complete ownership of the national airline. That is small change compared to what it brings: control over an operation that has 141 aircraft, flights to over 200 destinations, over 7,000 airport slots and bilateral agreements with 43 countries. The Tata group will now have the largest market share of international traffic in and out of India, and the second most in domestic, just behind IndiGo.
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The government, which was keen to get rid of the airline that was draining Rs 20 crore of taxpayers’ money every day, made the deal a real sweet one for the Tatas. It transferred Rs 46,262 crore of Air India’s debt to a special purpose vehicle, Air India Assets Holding Limited.
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Tata knows what an aggressive competitor can do to the final price of an acquisition from his experience with Corus. The final price of the Anglo-Dutch steel company Tata Steel bought in 2007 made it expensive, and hence unviable, because of Brazil’s CSN, the only other final bidder.
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Historically, none of the mergers in Indian aviation has worked out.
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That includes the merger of Jet Airways with Air Sahara and Kingfisher Airlines with Air Deccan. “In fact,” he adds, “both Jet and Kingfisher Airlines couldn’t manage a full-service airline and a low-cost carrier simultaneously.”
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G.R. Gopinath, who had founded Air Deccan before selling it to Kingfisher Airlines, argues that the Tatas would be better off merging all the airlines.
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It’s not surprising that Gopinath would suggest that, given that was precisely what Vijay Mallya did not do after going through several rounds of mergers and rebranding of what was Air Deccan.
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Collapse of both Kingfisher and Jet Airways is often traced back to the acquisitions. Ironically, all the three mergers, including that of Air India and Indian Airlines, took place in 2007.
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Vistara, despite being a loss-making proposition, has a clientele that swears by its on-board service. The premium economy and business class seats are popular. Can the Tata group chairman risk taking these off? More importantly, he would need approval from Singapore Airlines, the partner in Vistara.
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Tatas have three important decisions to make,” says a senior executive at one of the rival airlines. “First is the kind of aircraft that they decide to keep or retire,” he says. The combined entity will have aircraft from both Airbus and Boeing. Not just that, the two low-cost arms—Air India Express and AirAsia India—have a completely different fleet. So a merger of the two will involve a big question over the aircraft,” the executive said.
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Depending on the fleet, Tatas will have to rework the network of their carriers. “The slots, flight timings, services….everything may have to be reworked. And, depending on the new network map, the management will have to take a call on the workforce,”
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The VRS package, if and when the Tatas chose to retrench some of the employees, will be closely watched.
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The HR issue apart, there is another pressure point when it comes to buying a national airline. It loses the sovereign backing. “Now Air India will be just another airline and will have to compete for things like slots on an equal footing,”