The strategic disinvestment of the erstwhile national carrier Air India was completed on January 27 this year. Having taken over Air India’s operations, the winning bidder, Tata Sons faces the challenge of making the carrier profitable toggling through the several operational mandates, it agreed upon during the bidding process. The coronavirus pandemic too could potentially create hurdles of sorts.
Dealing with the debt
Secretary of the Department of Investment and Public Asset Management (DIPAM) Tuhin Kanta Pandey had stated on Oct 8 last year that Air India’s total debt stood at ₹61,562 crore, as of August 31, 2021.
Tata Sons’ winning bid was for ₹ 18,000 crore. The number consisted of a cash component of ₹ 2,700 crore, which would be directly transferable to the Government of India. The rest, that is, ₹ 15,300 crore would be the debt that the bidder would have to absorb.
This implies, Air India’s remaining debt amounted to ₹ 46,262 crore. This would be transferred to the Govt of India’s Air India Asset Holding Limited.
Mr. Pandey had stated back then that Air India was operating at a daily loss of ₹ 20 crore.
To bail out the erstwhile national carrier, the Government of India had infused a total of approx. ₹ 1.10 lakh crore since FY 2009-10, Mr. Pandey had mentioned on Oct 8.
Business and operations
As per the terms laid out in the Share Purchase Agreement, Tata Sons would not be able to offload more than 51% stake in the erstwhile national carrier for a period of one year. The new owner, though allowed to go ahead with mergers and acquisitions, is required to be in compliance with the mentioned clause.
The government has also mandated a business continuity clause for a period of three years. Irrespective, Mr. Pandey had stated that the new owners would be given complete operational freedom.
Further, the eight logos associated with the ‘Air India’ brand cannot be transferred for the initial five years. Even after the completion of the stipulated five years, the logo or the brand can be transferred to Indian nationals only and not to any foreign entity.
The Air India acquisition would not mark Tata Sons’ debut in the aviation sector. It is part of a joint-venture (JV) partnership with Singapore Airlines, with a 51% stake in full-service carrier Air Vistara. Additionally, it holds an 83.67% stake in low-cost carrier AirAsia India – a JV partnership with Air Asia Investments Ltd.
Considering the mentioned JVs and the new purchase, Tata Sons potentially faces the challenge of balancing their synergies in their aviation realm.
Airlines and Coronavirus
Tata Sons would be operating the carrier in an environment which has been highly unfavorable for the aviation sector.
According to ratings agency ICRA, monthly domestic passenger traffic in January 2022 declined about 43% to 64 lakh compared to December 2021. It stood at 112 lakh in December 2021.
ICRA stated that on a year-to-date basis, domestic passenger traffic in (ten-months of) FY2022 remained about 45% lower than its pre-COVID levels. “...material recovery in passenger traffic to pre-COVID levels is likely to be slow following continued restrictions on international travel and subdued demand from the corporate traveler segment, in addition to the recent threat of the new variant (Omicron) which has impacted leisure segment too,” its latest report on the Indian Aviation industry states.
It expects the third wave of the coronavirus pandemic along with continued high fuel prices would delay recovery of demand in the ongoing fiscal year.
The wage bill
Mr. Pandey had stated Air India (until Oct 8, 2021) had 12,085 employees, consisting of 4,001 contractual and 8,084 permanent employees. Further, the low-cost carrier Air India Express had 1,434 employees. He added that about 5,000 employees are expected to retire in the next five years.
Tata Sons would not be able to retrench any employee for one year. After which, should there be a requirement for retrenchment, the employees would have to be offered VRS (Voluntary Retirement Scheme). Other benefits such as Provident Fund and Gratuity Benefits would continue as per “the law of the land”.
Post-retirement medical benefits for those who have retired or on the verge of retirement would be provided by the Government of India.
- The strategic disinvestment of the erstwhile national carrier Air India was completed this year, and having taken over Air India’s operations, the winning bidder, Tata Sons faces the challenge of making the carrier profitable toggling through the several operational mandates, it agreed upon during the bidding process
- Tata Sons’ winning bid was for ₹ 18,000 crore. The number consisted of a cash component of ₹ 2,700 crore, which would be directly transferable to the Government of India. The rest, that is, ₹ 15,300 crore would be the debt that the bidder would have to absorb
- The eight logos associated with the ‘Air India’ brand cannot be transferred for the initial five years
