Flying to new heights?

Tata’s Air India
By Dhurjati Mukherjee

There has been much discussion and debate on the question of disinvestment of public sector organisations with accusations of the government handing over viable units to the private sector. But the case is different with Air India, an ailing entity, which has rightly been handed over to the Tate group, which commands the maximum credibility among all corporate groups in India. The transaction, which is expected to be completed by December this year, marks a return to the aggressive privatisation plan of Prime MinisterNarendra Modi.
Air India is the country’s first privatisation after almost 19 years and this sends a powerful signal that India is ready to do business sensibly. There is definitely a ray of hope as the return of Air India to its original home is a momentous event. Experts believe that the organisation may become viable in the not-too-distant future with the expertise and management of the group.  As Ratan Tata, Chairman Emeritus of Tata Sons aptly pointed out that though considerable effort would be needed to rebuild Air India, it will hopefully provide a very strong market opportunity to the group’s presence in the aviation sector.
Though the Rs 18,000 crore bid at which Tata Sons won Air India, is just the beginning of its expenditure on aviation, it will need to allocate more resources to sustain aviation and revitalise the company. Obviously, the merger of Vistara and Air Asia India with Air India is a certainty but it is believed that the integration of multiple aviation units will be possible only after that.
The Air India acquisition comes with a provision restricting the new owner from transferring its shares directly or indirectly to any person for one year from the date of closing the transaction. A merger is, however, allowed provided the new owner holds more than 51 percent during the one year lock-in period. Meanwhile, the dynamics of Tata’s aviation business changed with the acquisition of Malaysian partner’s 33 percent share in Air Asia India, increasing its holding to 84 percent. Now Tata Sons has to buy the remaining 16 percent of Air Asia by next year.
The Tatas will now have five brands – Air India, Air India Express, Indian Airlines, Air Asia India and Vistara – which, it is understood would be used for different segments. It will be tempting to consolidate all these under a single or double brand. It is expected and there are enough indications that the Tata Group would leave no stone unturned and utilise all its marketing skills to make Air India viable in a year or so.
As is well known, over the years, the loss making, cash strapped airline has got a negative image. In fact, Air India’s accumulated losses amount to almost Rs 84,000 crore and the government was taking a daily hit of around Rs 20 crore. But aviation experts feel that since two-thirds of AI’s revenue comes from international markets such as North America, Europe and West Asia, there is great potential and judicious marketing could increase profits. In fact, the airline’s frequent flyer programme has more than three million members.
Since the company’s debt has been taken over by the government, it will be easier for the turnaround. More than 90 percent of the losses were due to interest and depreciation. In recent years, Air India was successful in making an operating profit. But there can be no denying that the Tatas will have to infuse equity, estimated by experts to be a few billion dollars, to ensure that the turnaround takes place at the earliest.
The domestic business is also destined to grow in a big way as more and more people from middle income sections prefer to travel by air. With costs being competitive and air travel costs comparable to AC-II train fares, the preference for the latter will increase in the coming years.
The Tatas have to be competitive in the domestic segment with Air India Express and Vistara with IndiGo cornering around 57 percent of the market share. However, Air India would be preferred by Indians for international travel. With competitive rates and big carriers, it is expected that Air India would find its place as a comfortable and cheap international carrier.
There is enough justification in this sell-off as the government failed to make Air India viable and there was a necessity for a country of India’s stature to have a viable and vibrant national carrier. Experts, not just in India but the world over, would now look to the Tata Group for its expertise and high levels of management skills to turn around Air India and bring back its prestige.
If the revival of Air India becomes possible, say in the coming two years or so, the Tatas would prove how a private sector can bring about miracles. But there are many obstacles. Though in recent years, employee numbers are a little over 12,000 – out of which over 8999 are permanent and 4000 contractual staff — this has to be brought down. Fortunately the staff is mostly over 55 years of age and they may accept retirement after a year. However, it may be mentioned that employees have expressed concern over the terms of agreement that say the Tatas have the obligation to retain them for just a year and after that, some of them will take Voluntary Retirement Service (VRS).
All said and done, the sell-off of Air India has been welcomed by one and all because of the prospect of the organisational being handled effectively through better and efficient governance. This experiment is bound to succeed as the Tatas have wide expertise and experience in the aviation sector. This decision should have been taken long back and the inordinate delay only added to the losses of the government. Thus prompt decision making is necessary in such cases as Air India privatisation, say three to four years back, could have cut down government losses and helped the exchequer. It needs to be reiterated that a healthy aviation sector is vital for the growth of India’s tourism and hotel industry. — INFA