Air India: Emotional reasons valid but Tatas' cautious stance in disinvestment the right approach

New Delhi: One thing is clear from the statement of Tata Sons’ chairman N Chandrasekaran about the group’s willingness to look at buying stake in Air India - a decision either way will depend on a whole range of factors, not merely on emotional connect the Tatas have always had with the aviation business. Air India was originally a Tata airline, launched by J R D Tata in 1923 and was helmed by him for years before the government’s abrupt nationalisation in 1953. When the government first tried to privatise the airline in 2001, the Tatas were frontrunners in association with Singapore Airlines. But dirty politicking stalled this process and the airline has remained wholly owned by the government.

Current group patriarch Ratan Tata has continued to be passionate about the aviation business, earlier again expressing interest in buying Air India whenever it was up for sale. He also lead efforts to launch two separate airlines with foreign partners in India after FDI caps were lifted and Tatas were the first potential buyer the government approached when it decided to offload a strategic stake in the airline earlier this year.

But despite the emotional baggage, what Chandra has said in interviews makes sense. A decision will depend on the government’s stance on lifting FDI caps in the sector, whether such an acquisition will provide scale to the Tatas in aviation and the future growth potential in the sector after this buy.

Remember, the group already has two separate airline ventures in India, one in partnership with Singapore Airlines (Vistara where SIA holds 49 percent stake) and Air Asia India where the Malaysian partner again holds 49 percent stake. But the share of the two airlines together is nowhere near market leadership. While it is correct that the Tatas’ emotional attachment to Air India can neither be denied nor belittled, that alone should not push the group into yet another acquisition. The first attempt at privatising Air India was a botched up one, when dirty politicking stalled the entire process. Singapore Airlines had teamed up with the Tatas even then to buy 40 percent stake in Air India in 2001, but the sale never happened.

Representational image. PTI

Representational image. PTI

In an interview to CNBC-TV18, Chandrasekaran said “We will definitely look at it. We still don’t have all the details. Every business proposal will be very seriously looked at and we will look at that (Air India). Definitely. But currently we don’t have the data... there are so many different groups within Air India and then there is real estate, there is debt, there are liabilities and we got to look at all of that it but we will definitely look at it.”

Remember, there is little forward movement on the sale specifics, with the government still not specifying how much stake would be on the table, whether foreign airlines will at all be allowed to participate in the sale process and if all of the airline’s nearly Rs 50,000 crore debt will have to be borne by the buyer. Though senior officials in the ministry of civil aviation have been indicating it needs just “push of the pen” to change or ease FDI caps, some Central ministers have publicly indicated they would like the airline to remain in “Ïndian” hands.

In the latest consolidated FDI circular published in August, the government maintained that 49 percent cap for foreign airlines wanting to invest in the capital of Indian carriers but clarified that this part of the policy is not applicable to Air India. Unless the exemption to Air India is removed, the bidders can only be Indian entities. This means the Tatas cannot partner with Singapore Airlines for a potential bid, though the same can be made via Vistara.

Separately, sources tell us that there is “considerable confusion” within the government on whether to offload certain businesses of Air India outside of the stake sale process and which these businesses or services should be. “There is no decision yet on whether to sell off some real estate, some services like ground handling and some bilateral flying rights before initiating disinvestment. If any of this is done however, the airline may become less attractive for a potential buyer,” said a person close to developments.

The issue of debt is also an important one and perhaps the toughest for the government to settle before it puts Air India on the block.

How much to write off? There have been reports of a substantial write off or hive off by forming a separate entity to house this portion of the debt.

Meanwhile, in the same interview, Chandra also spoke of the importance of each business having scale. “We have a team which can definitely spend the time as soon as the details are out. We need to look at aviation as a whole. We are subscale. We got two airlines both are subscale. Any decision that we take—Air India or otherwise—we have to have a story because we can’t be operating with 15 aircraft or 20 aircraft. I feel scale is important, in every industry in every group we operate in scale is important. Without scale you get to a situation where you are all over the place and it is very, very difficult to pay management attention."

Well, till Air India buy makes sense, the Tatas should not come forward. Apart from the Tatas, the promoters of IndiGo have also evinced interest in the airline’s international business while two separate entities have spoken up for the airline’s ground handling business.

Updated Date: Oct 10, 2017 16:29 PM

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