INDIA — Earlier in January this year, it was reported that India’s national carrier, Air India, has been officially handed over to the Tata Group. Tata bought the perennial debt-ridden airline in October last year after the Modi government decided not to support Air India any longer.
Air India had been making losses for more than a decade, since 2007. It remained operational due to the continuous bailouts by the Indian government. In fact, the Modi government said that Air India was incurring losses of nearly US$2.6 million every day and that the bleeding had to stop. Air India “suffered for its inconsistent service standards, low aircraft utilisation, dismal on-time performance, antiquated productivity norms, lack of revenue generation skills and unsatisfactory public perception”, according to a former executive director of the airline.
Among the non-core assets owned by Air India include some 40,000 pieces of art and collectibles, including an ashtray designed and gifted by Spanish surrealist artist Salvador Dali in the 1960s. Tata was reported to have paid nearly US$2.4 billion to acquire and take over Air India, after the Modi government made the terms of the debt less onerous for Tata. Global airline CEOs and industry experts have said the Tata group’s takeover of Air India is the best chance Air India has to survive.
Tata Talking To SIA
Now that the Tata group has completed its acquisition of Air India from the Indian government, it is now talking to Singapore Airlines (SIA) proposing that their Tata-SIA joint venture company, the Vistara Airline, be merged with Air India.
Vistara was set up by SIA and Tata in 2013, as SIA tried to move into the Indian market. They have invested several hundred millions into the airline, although the exact figure has never been revealed. Currently, Vistara operates flights to 42 destinations — 31 domestic and 11 international. Tata owned 51 percent while SIA 49 in Vistara. In terms of domestic market share, IndiGo has 56 percent while Vistara and Air India have 10 and 7.5 percent respectively.
Since Vistara started, it has never been profitable (‘Vistara celebrates seven years but remains loss-making‘, 12 Jan 2022). It ended the financial year 2021 in March with a Rs1.612 billion (US$19.57 million) loss. In 2016, it suffered a loss of Rs400 million, with losses increasing by the year since then. Analysts said that Vistara’s cost structure is simply too high. Its shareholders SIA and Tata actually needed to pour in an additional Rs1.2 billion last year.
In a commentary piece by its Associate Editor Ven Sreenivasan (14 Oct), Straits Times said that the merger “makes sense on several fronts”. It said that the merger would combine the capabilities of Vistara with Air India’s “huge domestic and global network”.
“It would enable SIA to maintain a critical foothold in India through its Air India stake,” Mr Sreenivasan said. “SIA would bring its airline expertise, while Tata the corporate cover in India.”
Though Air India has been making losses, the deal is sweetened with the airline’s 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas. More than two-thirds of its revenues come from its international operations.
According to the aviation ministry, its fixed assets — land, buildings, planes — in March last year were worth more than 450bn rupees (US$5.46bn).
Mr Sreenivasan did note that it would “take a while” to turn Air India around “but the rewards of a successful turnaround could be huge for both SIA and Tata”. He didn’t say what would happen if Air India entities continue to bleed, dragging down everyone. “If any entity can transform Air India, it is the Tata group. And if any company has the capability to help make it happen, it is SIA,” he added.
Meanwhile, SIA confirmed that discussions with Tata are ongoing. It is unclear what stake, if any, SIA would have if Vistara merges into Air India, or whether fresh funds would be needed to save Air India through the merged entity.
Already, India mainstream media have reported that Tatas could offer SIA a stake for the Vistara-Air India merger, which means SIA would need to inject fresh funds into the merged entity in order to avoid any share dilution after the merger of Vistara and Air India.
In any case, if SIA does not have enough funds to inject, it could always launch a new rights issue to raise more funds from its shareholders. Presently, Singapore-owned Temasek Holdings is the major shareholder of SIA.
