Tata Sons’ fiscal cost for acquiring Air India will be ₹2,700 crore, 15% of the national carrier’s enterprise value of ₹18,000 crore. It will take over ₹15,300 crore debt of the beleaguered airline. The government is expected to write off around ₹28,000 crore as sovereign debt.
According to experts, the ₹3,000-crore outgo will not have any adverse effect on Tata Sons’ aviation business. The holding company of the Tata group, which is acquiring Air India through its wholly owned subsidiary Talace Pvt. Ltd., is cash rich at present. In FY21, Tata Sons posted a 142% year-on-year jump in standalone profit at ₹6,512 crore on a revenue of ₹19,598 crore.
Another advantage is that the group has a lower debt ratio. According to the recently released annual report, the standalone net debt of the holding company was ₹27,615 crore, not much change compared with the previous year. “The (standalone) net debt-to-market value of investments held by the company was at a healthy level of 0.03 times as on March 31, 2021 compared to 0.05 times as on March 31, 2020. The return on equity, pre-exceptional items, was 32.07% for the current year,” the company said in the annual report. The adjusted net debt of the entire group stood at ₹2.6 lakh crore, against ₹2.38 lakh crore in the previous year.
Post the acquisition, the Tatas will fully own full-service airline Air India and its low-cost carrier subsidiary Air India Express. It will also own 50% in the joint venture Air India SATS, which is engaged in airport services — ground and cargo handling. The total permanent and contractual employee strength is 13,500.
“While admittedly it will take considerable effort to rebuild Air India, it will hopefully provide a very strong market opportunity to the Tata group’s presence in the aviation industry. On an emotional note, Air India, under the leadership of Mr. J.R.D. Tata had, at one time, gained the reputation of being one of the most prestigious airlines in the world. Tatas will have the opportunity of regaining the image and reputation it enjoyed in earlier years. Mr. J.R.D. Tata would have been overjoyed if he was in our midst today. We also need to thank the government for its recent policy of opening select industries to the private sector. Welcome back, Air India!,” Tata group chairman emeritus Ratan Tata said in a statement.
JRD founded Air India in 1932, which was later nationalised.
“This is a historic moment, and it will be a rare privilege for our group to own and operate the country’s flag bearer airline. It will be our endeavour to build a world-class airline which makes every Indian proud. On this occasion, I would like to pay tribute to J.R.D. Tata, pioneer of Indian aviation, whose memory we cherish,” Tata Sons chairman N. Chandrasekaran said.
Tatas will get ownership of iconic brands, including Air India, Indian Airlines and the Maharajah. Air India has a fleet of 117 wide-body and narrow-body aircraft, and AIXL a fleet of 24 narrow-body aircraft. A significant number of these are owned by Air India. More than two-third of Air India’s consolidated revenues comes from the international market. It is the No.1 player from India in the global market with a strong footprint across geographies, including North America, Europe and West Asia.
However, the acquisition is not without worries. Tata Sons’ subsidiary AirAsia India’s annual net loss almost doubled in the last financial year, and net worth was eroded due to the impact of Covid-19. Vistara, the group’s joint venture with Singapore Airlines, is also in losses. AirAsia India posted a loss of ₹1,532 crore in FY21, while Vistara's loss stood at ₹1,1612 crore.
Experts expect Tata Sons will be able to use the synergy of the three airlines to reduce the cost and increase margins. But it will be a tightrope walk.