Tata Sons acquires Air India for Rs.18,000 crore

The Tata Sons floated special purpose vehicle (SPV) has emerged as the successful bidder for the 100 per cent takeover of the debt-laden state-run airline Air India. The Tatas’ winning bid was for Rs.18,000 crore, which was way above the Rs.12,906 crore reserve price set by the Narendra Modi government.

Announcing this on October 8, Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM), said that the Tatas won the strategic sale bid against the only other bidder, SpiceJet’s promoter Ajay Singh, who had bid in his individual capacity. Pandey categorically stated that Air India was “deeply, deeply” in the red.

Of the Tatas’ winning bid, Rs.15,300 crore, or 85 per cent, will go towards servicing Air India’s accumulated debt (which as of August 31 stood at Rs.61,562 crore). The remaining Rs.2,700 crore the government will receive in cash. The transaction does not include Air India’s non-core assets, including parcels of prime land, buildings and other assets, which are valued at Rs.14,718 crore. These will be initially transferred to the government-owned SPV Air India Assets Holding Ltd (AIAHL) and then hived off. In recent years, Air India, which employs 8,084 permanent staff and 4,001 persons on contract, has been run on government budgetary support and guarantees.

Besides winning the right to fully own Air India, an airline started by the legendary industrialist and philanthropist Jehangir Ratanji Dadabhoy Tata in 1932, the Tatas will secure a 100 per cent shareholding in Air India’s AI Express Ltd (1,434 employees) and 50 per cent in Air India SATS Airport Services Private Ltd. The deal, subject to the successful bidder and the government satisfying all statutory requirements, and the Competition Commission of India and third-party approvals, is expected to be closed before the end of December. Addressing a press conference announcing the Tatas’ successful bid, Pandey said: “By December we hope to get the consideration and they [Tatas] will get their shares.”

Of Air India’s accumulated debt of Rs.61,562 crore, 94 per cent is government guaranteed. This, after the Tatas’ bid and Air India’s non-core assets’ sale, will approximately total Rs.33,000 crore, which the government will have to service. The government also disclosed that since 2009-10 the tax payer has funded Air India to the tune of Rs.1,10,276 crore—Rs.54,584 crore by way of cash support and Rs.55,692 crore by way of guarantee support.

While the Tatas have been provided operational freedom, the government has included a business continuity clause of three years, and the Airline cannot be resold for a period of five years. And even after that period it cannot be sold to a foreign national/entity. Air India, which has continuously toted losses since 2007, the year it was merged with Indian Airlines, incurred a net loss of almost Rs.8,000 crore for the year ending March 2021. Despite its huge accumulated losses, Air India has some attractive assets, including control of 4,400 domestic and 1,800 international landing and parking slots at domestic airports and 900 slots at airports overseas.

For the Tatas, acquiring Air India must bring a sense of déjà vu. It was J.R.D. Tata, India’s first licensed pilot, who founded the airline in 1932, then known as Tata Airline Services. By 1946 the airline was listed as Air India, and though its international service was among the first public-private partnerships in India, with the government holding 49 per cent, the Tatas 25 per cent and the public owning the rest, it was nationalised in 1953.