Feelings and business: what the acquisition of Air India means for Tatas

NEW DELHI: The Tata Group won on Friday the bid to acquire ailing national carrier Air India, an airline it founded nearly 90 years ago.
The deal, which is expected to be finalized by the end of the year, puts Air India back into the hands of the group that founded it as Tata Airlines before it was nationalized in 1953.

The sentiment behind the trademark deal was hard to miss when the group’s Chairman Emeritus Ratan Tata tweeted a moving note with the caption “Welcome, Air India.”
While there is indeed a visible sense of sentiment attached to the acquisition, Tatas also hopes to use the deal to improve its position in the aviation business.
The group already operates two airlines. One is Vistara, which is a joint venture with Singapore Airlines. The second is AirAsia India, in which it has a majority stake.
With the acquisition of Air India, the Tata group will become the second national airline after Indigo, once the consolidation of the operations of the three airlines is completed.
The three airlines currently have a combined market share of 26.9 percent.

The announcement also revived several Air India employee unions who had been in favor of a final deal for a very long time.

Here is what Tatas will gain with the acquisition:
* Air India will give Tatas access to over 100 planes, thousands of trained pilots and crews, and lucrative landing and parking spots around the world.
* The airline will give Tatas successful control of 4,400 domestic and 1,800 international landing and parking spaces at domestic airports.
* It will also get 900 slots at overseas airports, the most lucrative of which are at Heathrow in London.

* It will acquire 100 percent of the shares of low-cost subsidiary Air India Express and 50 percent of AISATS, which provides freight and ground handling services at major Indian airports.
* All departing employees will be retained. Air India has 12,085 employees, including 8,084 permanent and 4,001 contractual. While Air India Express has 1,434.

* The airline has the dubious distinction of having the most employees on its lists by air – its 221 employees by plane versus 127 by plane at Lufthansa, 140 at Singapore Airlines and British Airways 178 employees by plane.

The winning bid

The Tata group cited a winning financial offer of Rs 18,000 crore including Rs 15,300 crore in debt redemption and Rs 2,700 crore in cash.

The offer was higher than the offer of Rs 15,100 crore from a consortium led by SpiceJet promoter Ajay Singh and the reserve price of Rs 12,906 crore set by the government for the sale of its 100% stake in the loss-making carrier.
However, the deal does not include non-core assets such as land and buildings, valued at Rs 14,718 crore, which are to be transferred to the government’s Special Purpose Vehicle (SPV) Air India Asset Holding Limited (AIAHL) .

AIAHL will also hold the remaining debt of Rs 46,262 crore of the airline (Rs 61,562 crore of total debt, of which Rs 15,300 crore will go to Tatas).
Over the past decade, over Rs 1.10 lakh crore has been injected in the form of cash support and loan guarantees into the loss-making airline to keep it afloat.
The Tata Group is a sprawling collection of nearly 100 companies that includes the country’s largest automaker, the largest private steel company and a leading outsourcing company.
Tata bought Jaguar and Land Rover for $ 2.3 billion from Ford in June 2008.
(With contributions from agencies)