Indian conglomerate Tata Sons have won a bid to acquire Air India for ₹18000 crore. Tata beat out competition from Spice Jet to bag the airline that was once known as the crown jewel of JRD Tata’s sprawling empire.
The debt-laden national carrier has for long been a subject of divestment, an objective that has now come to fruition.
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The prodigal son returns
For the Tata’s, who were the original owners of Air India, bringing the airline back to the group has been a long awaited dream. Much has changed since Air India left the fold, but the Tata’s never let their love for the open skies fade away, and the national carrier was often referred to as JRD’s true labour of love. While there are emotional undertones, the fact means that this is a deal that has for long been on the radar.
Why was the government keen to divest?
It is a sign of how poorly run Air India was that it has never posted a profit since 2007. If one were to look at the documents even more closely, the government exchequer has spent over ₹ 1.1 lakh crore since 2009 to cover for the loss making entity.
The piper always has to be paid though, and as debts mounted as high as ₹61,562 crore by August 2021, something had to give. The fact that each additional day of operation cost the government ₹20 crore – which would have totted up to an annual loss of ₹7300 crore – meant that the powers that be were keen to cut their white elephant loose.
What did the sale entail?
Besides the sale in Air India, the government also announced the sale of two other businesses — Air India Express Ltd (AIXL) and Air India SATS Airport Services Pvt Ltd (AISATS) in a 100% deal, as opposed to previous attempts that saw the government try to hold a stake in the beleaguered airline. These attempts, until 2020’s most recent attempt, failed to gather much interest since private players wanted to control all the chips at the table and not a piecemeal solution.
The fact that the government would not even be a minority stakeholder proved to be a catalyst. That, coupled with the fact that potential buyers were allowed to decide how much of the mountain of Air India’s debt they’d take on, proved to be critical to the sale going through.
What does this sale signify?
This sale can be seen as an extension of the Modi government’s commitment to reducing the role of the government in major economic sectors, as it attempts to rationalise its holdings. Without a doubt, this will prove to be of some relief to the national exchequer, and the tax paying public.
However, if one were to step back and look at it in cold, analytical terms, there are still some concerns flying under the radar. As mentioned earlier, Air India had a total debt of ₹61,562 crore, of which the Tatas agreed to take on ₹15,300 crore, with a further ₹2,700 crore being paid to the government to sweeten the deal.
A simple back of the napkin calculation means that this leaves ₹43,563 crore of debt still dangling over the government. With asset sales likely to generate in the region of ₹14,718 crore, this leaves the government holding a bag worth approx. ₹28,844 crore to be handled.
The final word
All said, this is a win-win situation for all parties. The Government gets to write down a mountain of debt that was staring them in the face. The Tatas get an emotional reunion with their long lost pride and joy, and you can be sure that they will go above and beyond to restore the national carrier back to its halcyon days, in a move that can only bode well for the common man. Blue skies are in the offing, and we are clear for takeoff.
