Thursday, November 22, 2018

Tata Group’s moment of reckoning in the skies

The most recent and most glorious chapters in the history of the 150-year old Tata group, are dotted with mega-acquisitions. Ratan N. Tata, better known as RNT, in his 21-year tenure as the group’s supremo, chose the inorganic route to scale businesses and give the group a global footprint. From Tetley Tea to Jaguar Land Rover, under RNT, the Tata group never shied away from an acquisition and there was always a sense that the next big deal was just around the corner.

But mergers and acquisitions are never as easy as they seem. Experts say only a third of all acquisitions end up being successful. The same is true of the big acquisitions made by the Tata group. While Jaguar Land Rover proved to be a big success, the acquisition of the erstwhile steelmaker Corus and various iconic hotels across the world by Indian Hotels Company Ltd have ended up being a drag on the balance sheet.

In the years since RNT’s retirement, the group’s drive for ambitious acquisitions appeared to have dissipated. Cyrus P. Mistry, who was ousted unceremoniously in 2016 as the group’s chairman, wanted to reorganise the group by getting rid of the costly and non-performing acquisitions of his predecessor. Mistry’s replacement and former Tata Consultancy Services chief Natarajan Chandrasekaran may not like to admit it but he hasn’t entirely given up on his predecessor’s plans to divest the underperforming acquisitions as can be seen from the merger of Tata Steel Europe (erstwhile Corus) with competitor Thyssenkrupp AG and the sale of its consumer mobile business to Bharti Airtel.

Instead of acquisitions, Chandrasekaran, better known as Chandra, looked within the group for consolidation. In an interview to Fortune magazine, soon after he took charge in 2017, Chandra said he plans to remake the group's portfolio so that it only includes large businesses that lead their industry. “Tata is already a $100 billion group. To get to the next level we need scale. We can’t do it with multiple small companies,” he had said.

No surprise then that till a few weeks ago, the Tata group’s name was rarely linked with any major acquisition. That was until India’s oldest private airline, Jet Airways, hit an air pocket that left the carrier’s founder Naresh Goyal hunting for investors.

A few years ago, this deal would have appeared to be the stuff of fantasy. After all, it was Goyal’s influence in New Delhi that prevented the group from re-entering the civil aviation space in the mid-90s and early 2000s. Yet, being the hard-nosed businessman that he is, Goyal has a penchant for forgetting the past when he needs it the most. Back in 2012, after opposing foreign direct investment in the airline business for years, Goyal threw his weight behind the reform and within months walked away with an investment from Abu Dhabi’s Etihad Airways.

Today, Jet Airways offers the Tata group a tempting proposition to become the second largest player in Indian aviation. Put together, Jet Airways and the two airlines where Tatas have a stake, Vistara and AirAsia India, have a combined domestic market share of 24.7%. The combined entity will also have 159 aircraft, both wide-bodied and narrow-bodied, with an average of nearly 21,830 monthly departures in the domestic market. And maybe most importantly, the acquisition of Jet Airways will mean the Tata group acquires the Indian carrier with the largest international market share among the airlines operating flights from India.
22/11/18 Debabrata Das and Arnika Thakur/Fortune India

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