Thursday, June 22, 2017

The air pockets in Tata’s plans to pilot Air India

It seems right out of a bollywood movie: A businessman taking back control of a cherished asset that an opportunist government unfairly snatched away from his father more than six decades ago. If the ET Now news report about the Tata Group discussing buying a controlling stake in the ailing Air India from the government comes to fruition, it would be a huge boost to the sentiments at the country’s largest industrial conglomerate, which, ironically was the original founder and owner of what is now India’s beleaguered national carrier. However, there might be a few concerns that the Tata Group chairman N Chandrasekaran must be watching out for right now.
First, Air India would not be the only airline in the Tata Group portfolio. The group’s keen interest in an otherwise tough Indian aviation market is no secret, owing to which, Tata has built up positions and active business interests in two major domestic carriers. It has an equal stake in low-cost carrier AirAsia India in partnership with Malaysia’s Air Asia, and a controlling stake in a premium airline Vistara in joint venture with Singapore Airlines.
Air India, which is also a full service carrier with an envious market share of the Indian aviation market, would be an interesting addition to its existing business portfolio. While Air India’s brand and service positioning is quite different than Air Asia, it might be in direct competition to Vistara on certain routes and sectors, although Vistara’s fleet of 14 aircraft is no match to Air India’s 118 aeroplanes. Nevertheless, Tata Group may require the approval of the competition regulator Competition Commission of India.
The major problem is the debt. Air India, under intense competition from leaner, more efficient and often-cheaper private airlines, is reeling under a debt of over Rs 50,000 crore, with about Rs 28,000 crore in working capital debt, and about Rs 4,000 crore in interest burden alone. It has not turned profit in 10 years, since at least the year 2007.
The Tata Group is reportedly concerned with Air India’s huge debt pile and is reportedly seeking a substantial reduction in the debt burden before considering the acquisition. Meanwhile, the government, which is also reportedly keen on retaining Air India as a domestic carrier and is happy with the Tata Group’s interest in the national carrier, is also reported to have assured that it will bring the airline’s debt down substantially to make the deal lucrative for the Tata Group.
To add to uncertainties, the structure of the deal could be another point of discussion. It is still not clear whether the government is looking for partial disinvestment through dilution of controlling stake, or an outright privatisation with 100% stake sale and complete exit. With the amount of money and scale of operations at stake, it will be keenly watched if Tata is willing to have the government as a minority partner, and thus a pile-on in what it is sure to treat as a most cherished asset.
22/06/17 Financial Express