What will Tata Group do with three airlines in its stable?, Travel News, ET TravelWorld

What will Tata Group do with three airlines in its stable?, Travel News, ET TravelWorld


Drop in at Air India Ltd’s Mumbai office in early 2001, and you might have come across an elderly, white-jacketed man winding up the clock. With 17,400 employees and just 24 planes — three times the staffing level at major US airlines — silly tasks like timekeeping in the headquarters had become someone’s job description.

Still, optimism was in the air back then. With India seeking to sell its national carrier, half a century of accumulated sloth was about to be shed. And yet, the privatisation plan collapsed, and took 20 further years and billions of dollars of wasted capital to be reassembled again. Finally, when the global travel industry has been ravaged by a pandemic, Prime Minister Narendra Modi has managed to let Air India go.

Two decades ago, the airline was valued at USD 4 billion by the pilots’ union. Compared with that, the winning bid of USD 2.4 billion by the Tata Group — from whom Air India was wrested by a socialist-minded government in 1953 — is a pittance. More so, as cash payment to New Delhi will account for only 15 per cent of the consideration. The rest will be debt assumed by the new owner, a Mumbai-based conglomerate that also controls Jaguar Land Rover and runs India’s largest computer-software firm. Even after the deal, USD 6.2 billion in borrowings will get left behind and become explicit state liability.

Ratan Tata believes that the move will provide a strong market opportunity to the Tata Group’s presence in the aviation industry.

Yet the transaction makes sense. Selling Air India was never only about the proceeds. The carrier was a symbol of all that can go wrong when a state lacking the ability to deliver basic services like health and education starts competing in the commercial arena. Modi’s goodbye to the indolent Maharajah — the airline’s mascot — will buttress his government’s reform credentials at a time when the economic recovery from Covid-19 is still tentative and uneven. With the future of global travel mired in uncertainty, knowing that taxpayers won’t have to keep coming to the airline’s rescue is a boon for stretched government finances.

In 1953, a newly independent India made a huge blunder by nationalising Tata Airlines Ltd., which had managed to build a culture of customer service, something that vanished — along with ashtrays designed by Salvador Dali — in the drab, dreary socialism of the late 1960s. The carrier became a den of entitled employees dancing to the tunes of bureaucrats and politicians.

Air India always had valuable parking slots at airports like Heathrow and bilateral flight rights. But it didn’t have planes to fly the routes. By the late 1990s, it was clear that the government couldn’t carry the burden perennially. But intense lobbying by Jet Airways India Ltd, the largest private-sector carrier back then in the Indian skies, defeated the 2001 privatisation plan to cynically doom the more efficient competitor that might have emerged. The then-aviation minister bragged about not letting even a nail of Air India go out of the state’s control. Then, reversing the decision to sell, a new government decided to beef up Air India with a USD 10.8 billion fleet expansion and an ill-advised merger with Indian Airlines, the domestic state-owned carrier. Profit disappeared forever. Debt piled up.

This particular vertical will be bifurcated into airlines and hotels businesses.

Now that Jet Airways is bankrupt and the Tata Group have won back what was theirs, the question is, what will they do with three airlines in their stable? Tata has Vistara, a joint venture with Singapore Airlines Ltd for full-service domestic and international flights. They also have a majority stake in a no-frills carrier with Malaysian entrepreneur Tony Fernandes’s Air Asia Group. Consolidation is the way forward, with Singapore Airlines probably to be relied upon for operational knowhow and Fernandes given an exit.

Will the Maharajah be restored to its former glory? The answer matters to Ratan Tata, whose lifelong love affair with planes hasn’t translated into much business success with Vistara and AirAsia India. Now, for his 84th birthday in December, the group patriarch is getting 13,500 fulltime and contractual employees of Air India and the low-cost service it operates in the Middle East. With them will come the culture of a defeated public-sector organisation.

It won’t be an easy integration, but that’s the buyer’s headache. Indian taxpayers ought to be relieved to have cut their losses. International investors should be thrilled to get the deal they have always equated with a clear signal that India wants less government in commerce. That may be much more valuable that the seemingly low sticker price for the airline.





Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: