From Maharaja of the Skies to Maharaja of the debts
India's first airline which began its operations with Mr. JRD TATA flying the first flight from Karachi to Bombay is kneeling under huge debts. The then-named Tata Airlines was formed in 1932 by Mr. Tata himself. Post-independence it was nationalized and the government of India bought the majority stake in the airline in 1952 and later renamed it as Air India.
India’s biggest international airline with over 45 international destinations, began its deadly fate in 2007 when the GOI merged it with Indian Airlines. The losses which were below 800 crores in 2007, escalated to more than 7200 crores in 2009. By March 2011, when the merger was completed, the airline popularly quoted as ‘Maharaja of the Skies’, was under the debt of more than 42,600 crores. The major reason for such exponential growth in debt is attributed to complex mergers and a huge order of 111 aircraft for more than 70,000 crores in 2006. The governments have tried to keep the airline running through taxpayer's money, but the debts continue to rise. As of March 2019, the airline had a debt of more than 58,000 crores and a daily operational loss of rupees 28 crores. In 2017 GOI decided to completely disinvest and allow a private company to take over Air India along with its subsidiaries Air India Express and Alliance Air. As per the disinvestment process now, the bidder will have to take up the portion of the debt and also pay the government 15% of the estimated value. After the closure of Kingfisher and Jet Airways due to huge debts, Air India might become the third Indian airline in just over a decade to close down if it fails to find a suitable bid.
But a turnaround for Air India is not an easy task. With possible protests from unions, pension issues, and complex financial books, the new owner will have a tough time. Years of mismanagement, lethargic process and lack of direction have turned the airline into a fund draining entity for the government. This is the plight of many other PSUs in India. Since the airline is under the government, it follows various guidelines related to reservations, recruitments, unions, pensions, etc. All these guidelines which might have been formed for employee welfare decades ago have now pushed many PSUs into mismanagement and huge debts.
What makes Air India an attractive investment option even with thousands of crores as debt? Air India owns crucial airport slots across the globe. For any airline to expand, slots play a key role. It also owns many valuable real estate properties across the country. Air India (with its subsidiaries) has a fleet of more than 170 aircraft and a good network of international routes.
Tata the original owner of the airline along with Mr. Ajay Singh, CEO of Spicejet are the two popular bidders for the airline. For TATAs, which already owns Vistara and Air Asia, acquiring Air India will help them gain the second largest market share (more than 23%) of the ever-booming aviation industry. This would also mean that TATAs would have a monopoly over the full-service airline sector as Vistara and Air India are the only full-service airlines in India. Also getting back Air India will have a lot of emotional and historical value for the group.
Ajay Singh, having successfully turned Spicejet into profit (Pre COVID year), might look at Air India as an engine to fast-forward Spicejet’s international endeavors. Having strong competition from Indigo in the domestic market, acquiring Air India might give it some extra thrust on the international routes.
As Air India might get a new owner by mid of this year, it would be interesting to see how it changes the dynamics of the Indian aviation industry.
