A hazy homecoming

After repeatedly being featured in headlines for not so good reasons over the past two decades, Air India is finally being projected to be in a win-win situation along with the Government of India.

While some see the sale in a very nostalgic light where the Maharaja is set for a grand homecoming after around seven decades, others have found in this sale the end to government woes. These flowery notions are not without merit but the grand homecoming is just the initial first step towards tiding across a sea of obstacles that lie ahead for the winning bidder. As for the government, the successful disinvestment/sale of the public air carrier appears to have come through a minimalist stance.

We shall retrospect here the different aspects of the sale and the factors that pushed both parties towards finalizing the deal. It will also be meaningful to discuss the road that lies ahead for Air India, as also the challenges dotting the path.

Long road to disinvestment

During the 1990s, Air India had been losing its market share to new entrants in the aviation sector. In 2000-01, the Atal Bihari Vajpayee government decided to disinvest 40 per cent of its stake in Air India to private players. Tatas, along with their partner company Singapore Airlines, had nearly made the deal but SIA backed out citing domestic resistance to the disinvestment process — referring to both political opposition as well as opposition by trade unions. SIA was also said to be wary about Colombo bombings where it had lost some of its assets.

The prospect of disinvestment remained dormant for over a decade and a half since then, even though Air India continued losing its foothold in the aviation sector, particularly after the merger with Indian Airlines. Apart from the failed merger, the UPA government had also tried to revive Air India through a turnaround plan (TAP) and a financial restructuring plan (FRP) in 2012, but with little success.

The scheme of things leading to the finalising of the current sale was kickstarted in 2017 when the Cabinet Committee on Economic Affairs approved the consideration of disinvestment of Air India and its subsidiaries. Expressions of Interests were invited in March 2018 for a 76 per cent stake in Air India, 100 per cent in Air India Express and 50 per cent in AISATS. This didn't go well for investors as most of them had reservations around the government's presence and also the staggering debt of over 33,300 crores.

Failing to attract a single bidder, the government again floated EOI in January 2020, this time around offering a full stake in Air India and Air India Express, along with 50 per cent in AISATS.

Bidders, particularly Tatas were still apprehensive regarding the debt which was kept at Rs 24,000 crores. The debt liability was further softened to the tune of around 15,000 crore and Tatas sealed the deal at Rs 18,000 crores. The government will absorb the remaining debt of the total amount of over Rs 61,000 crores.

History of Air India

It all started in 1932 when JRD Tata founded Tata Airlines. And today, the onus is again on Tatas to revive Air India. Of course, the quest for revival has emerged because there has been a fall from glory.

Glorious past

The biggest prestige associated with Air India was that it was the first planned airline of India. In its first year of service, the airline travelled 1,60,000 miles carrying passengers and freight to earn a profit of USD 840. JRD Tata's airline continued till 1953, after which it was merged with Indian Airlines, as the entire aviation sector in India came to be nationalized.

Air India started to lose its foothold in the last quarter of the century but the clear blow would come only in 1992 when, going with the trend of privatization, Indian airspace was left wide open for private players from India and abroad. The new players would appropriate most of its market share and the Maharaja would be set for a downward trend, leading to a near fall.

Fall from glory

As noted above, the process of the fall was set off in 1992. Air India failed to keep pace with the private players. An early attempt was made in 2001 under the Vajpayee government to disinvest limited stakes of Air India but that could not eventually fructify. Air India's profits dwindled to Rs 16 crores in 2005-06.

What followed was a series of policy failures on the part of the government. The then Civil Aviation Minister — Praful Patel — decided to go for a merger between Air India and Indian Airlines. Though it was conceived to minimize losses resulting from rivalry and scale up operation with combined capacity, the merger proved out to be a historic blunder that will snatch away all options of revival from Air India.

Furthermore, the merger decision was followed by reckless buying of fleets on account of burgeoning loans over the head of Air India and amidst a soaring discontent among employees over wages and other issues. To make things worse, the government parallelly green signalled the operation of foreign airlines, pushing Air India further to the fringes.

Challenges ahead

The road ahead for Tatas is as much abound with opportunities as it is fraught with challenges. In the most immediate terms, the group may be in a bit of a hazy situation with regards to the transition mechanism as it negotiates with the government for the hand-over of resources.

Broadly, getting Air India back on track requires an ambitious vision, professional management, an adequate amount of money and resources, and earning the big name that it once stood for — in marketing terms this could be called rebranding.

The success of any business proposition depends upon rational decisions and a long-term vision. Getting out of the nostalgic euphoria, Tatas not only do have a plan for the restoration of Air India but also to make money and stand at the top of the enterprise they represent — something that has been the hallmark of Tatas.

Enhanced scale of operations: Their aspiration to dominate the aviation sector has been curtailed by the fact that their existing operations in the aviation sector had a market share of merely around 13.5 per cent — 5.2 per cent of Air Asia and 8.3 per cent of Vistara. What the Tatas would have perceived while bidding for Air India was a doubled market share — including the 13.2 per cent of Air India. Also, in the case of Air India, Tatas will have a full stake — contrary to 84 per cent in Air Asia and 51 per cent in Vistara airlines. In a nutshell, the Air India acquisition provided a small window for Tatas to strive for dominance in Indian airspace. It is another matter that the leading airline — Indigo — is still far ahead with a market share close to 57 per cent. But such a discourse will just be a far-fetched prediction as of now. Certainly, the primary challenge before Tata Air India is that of survival, and it may take years of diligence, smart and bold moves to get past this challenge.

The prospective outlook of enhanced market share comes with an enhanced scale of operations. A critical look at the performance of Vistara and AirAsia will reveal the complexity of the task that lies ahead of Tata sons. Both the airlines are not even a decade old and have been facing losses year after year. Now, Air India is another loss-making venture added to its kitty. All in all, the picture is not that cosy for Tata Air India.

Maharaja's employees: Air India and Air India Express cumulatively have 13,484 employees. Employees of any organisation are indeed its real strength. But the case with Air India had been slightly different. Maharaja's employees are said to have enjoyed handsome salaries during the 1990s. At the time when Air India faced stiff competition from the new entrants, unions within the airline were a significant force in themselves. Though the government has eased the burden of Tata Sons' shoulders to a certain extent by assuring the clearance of pending arrears and other things, Tatas are required to continue with the same staff for at least a year. The task for them will be no less than walking the tightrope. In a way, this constraint of retaining the employees may be one of the limiting factors for the newly acquired airline to undertake radical and bold steps.

Junked assets: One of the major problems with Air India has been the set of its aircraft that are in dire need of upgradation. In terms of fuel efficiency and compliance with environmental norms, Air India aircrafts lag far behind — limiting their profit margins, and access to certain developed countries where environmental norms are stricter. So, the junked assets not only cut profit margins but also curtail the geographical domain of the aircrafts. The Tatas have an onerous task of revamping these existing assets into profitable tools. Apart from well-guided executive plans, what the group will need is an influx of expertise who do have the experience of handling similar transitions in the past. Given that the group has its own well-oiled dedicated administrative wing, it will be a big plus.

Making a good name: Everything said and done, it will make little sense if a lot is done and little is seen. There is no doubt that both Tata and Air India are a brand in themselves. Still, a parallel public relations campaign can be considered a must at this stage. A rigorous PR plan — though it may take significant investment — will go a long way in restoring the fading credibility of Air India.

Conclusion

The disinvestment conundrum of Air India has finally come to an end, and it appears the airline has found the most suitable buyer. Whatever be the driving factor behind Tatas' acquisition of Air India — nostalgia, business rationality, or a blend of both — they have now before them a sky of opportunities and a sea of challenges; they need to fly high and they need to sail through.

The acquisition has offered the group a very slim window to lay the ground for their castle of competing for the top spots in the airline industry. In addition, they have also inherited a large market share and a lucrative set of readymade resources and privileges, apart from a spirited leadership.

On the flip side, however, Tatas now have before them an enhanced scale of operation. Additionally, the Tata Group not only faces the challenge of revamping the dated apparatus of Air India, but of also restructuring a large base of human resources, made more complex by the Union culture. Apart from massive investment, it will also require roping in experienced global experts to complete the mammoth exercise. The group may have to take some radical decisions. An effective communication strategy will act as a pivot all along. The road is already taken and there is no looking back. The better it is travelled, the sweeter the destination.

Views expressed are personal