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Air India Completes a Full Circle

Written by Anaisa Arora, a grade 9 student.

With Air India being a subject of much interest these days, one can’t help but feel a pang of melancholy and nostalgia as one recalls the once-mighty maharaja of the sky…

By I Kid You Not , in Current Stories , at November 22, 2021 Tags: , , ,

Written by Anaisa Arora, a grade 9 student.

With Air India being a subject of much interest these days, one can’t help but feel a pang of melancholy and nostalgia as one recalls the once-mighty maharaja of the sky. 

After over two decades and three failed attempts, the government has finally sold its flagship national airline Air India, and it is déjà vu for Maharaja as it returns home to its founding father- the Tata company. 

India’s oldest airline had been put up on the block for a myriad of factors, including the fact that it has been losing revenue for the preceding 5 years. The glory days of the airline are well in the past. However, it wasn’t always like this.

A bit of History:
Jehangir Ratanji Dadabhoy (JRD) Tata founded the airline in 1932 and named it Tata Airlines. In 1946, the aviation division of Tata Sons was listed as Air India, and in 1948, they launched the Air India International with flights to Europe. Tata Airlines was founded in 1932 by Jehangir Ratanji Dadabhoy (JRD) and was named after him. Tata Sons’ aviation branch was relaunched as Air India in 1946 after being nationalised, and Air India International was established in 1948 with flights to Europe. 

The international service was among India’s earliest public-private partnerships, with the government owning 49%, the Tatas 25%, and the public owning the remainder.

The Details of the deal:

The INR 18,000 crore enterprise value transaction includes Air Air India Express and Air India SATS Airport Services, but ostracizes Air India’s non-core assets, such as its well-located real estate, which would be ceded to Air India Asset Holding. After five other bids were excluded, a consortium led by SpiceJet promoter Ajay Singh presented a competing proposal for an enterprise value of INR 15,100 crore.

Tata Sons chairman emeritus Ratan Tata reacted to the news by tweeting an old photo of the company’s prior chairman JRD Tata departing an Air India plane. He remarked by tweeting: “Welcome Back, Air India… The Tata Group winning the bid for Air India is great news. While admittedly it will take considerable effort to rebuild Air India, it will hopefully provide a very strong market opportunity to the Tata Group’s presence in the aviation industry.”

N Chandrasekaran, chairman of Tata Sons, commented: “This is a historic moment, and it will be a rare privilege for our group to own and operate the country’s flag bearer airline. It will be our endeavour to build a world-class airline which makes every Indian proud.” He also cited the airline’s “attractive international footprint,” as well as the airline’s prized slots and bilateral rights.

Why was Air India sold?
For the subsequent few decades after the airline was nationalised, the national carrier dominated Indian skies. This supremacy, however, was seriously threatened as a result of economic liberalisation and the burgeoning participation of private corporations. Ideologically, the government controlling an airline did not complement the rhetoric of liberalisation. 

To minimise expenses, Air India (which conducted international flights) was amalgamated with Indian Airlines (which operated regional flights) in 2007. However, the notion that the airline has never garnered a profit since 2007 is a testament to how poorly it was administered. Furthermore, during 2009-10, the government (and, by extension, the taxpayer) has spent over Rs 1.1 lakh crore to either directly compensate for losses or to obtain loans to do so. Air India owed Rs 61,562 crore as of August 2021. Additionally, the government loses Rs 20 crore every day that Air India remains active, totaling Rs 7,300 crore per year.

Air India “suffered for its inconsistent service standards, low aircraft utilisation, dismal on-time performance, antiquated productivity norms, lack of revenue generation skills and unsatisfactory public perception”,  as per Jitender Bhargava, the airline’s previous executive director.

Why wasn’t it sold earlier?

The first attempt to reduce the government’s stake — disinvestment — was made in 2001 under the then NDA government. But that attempt — to sell 40% stake — failed. As the viability of running Air India worsened with every passing year, it was clear to all, including the government, that sooner or later the government would have to privatise the airline.

In 2018, during its first term, the Narendra Modi government made another attempt to sell the government stake — this time, 76%. But it did not elicit even a single response.

The latest attempt was started in January 2020, and even though aviation is one of the worst hit sectors due to the pandemic, the government has been able to finally conclude the sale.

So, how did it go this time? 

There were 2 significant impediments. 

One was, government’s partial ownership of the company. Private investors were uninterested as long as the government had a stake in Air India. That’s because the mere prospect of government ownership, even if it was only 24 percent, made private enterprises question if they’d have the operational liberty needed to turn around such a substantially unprofitable airline. Unlike previous attempts, the government decided to sell the entirety of its share this time.

Two, Air India’s mountain of debt, not to mention the company’s continuous losses. Previously, the government wanted bidders to assume a portion of the debt alongside the airline. That strategy failed miserably. This time, the government let bidders choose how much debt they wanted to take on, making reconstructing the airline easier for the bidders. These two elements made the difference by sweetening the deal.

The airline, though heavily indebted, continues to hold great brand strength and repute, with its iconic Maharaja tag.

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