(Editor’s Note: The views expressed are that of the author.)
By T. S. Shankar
Come January, Air India, will lose its national flagship carrier tag, as there would be a change of guard with the airline joining the stable of the prestigious mega corporate business conglomerate, the Tata Group.
Even as the initial euphoria has hogged the media limelight for the past few days, the real litmus test of this biggest move by the Tata Group to bring back the glorious moments of Air India would begin now after a gap of 68 years, as the airline is returning to the umbrella of the Tata Group. The disinvestment plan of Air India began in 2017.
Known for its corporate governance and highly professional leadership, the Tata Group must pick up top-class leaders to not only clean up the financial mess which Air India is currently in and come up with newer and workable strategies to bring the airline out of the “red” in the highly competitive and capital-intensive aviation sector.
Now the moot question in the minds of the market analysts, veterans in the airlines field, and the key watchers of India’s civil aviation sector is whether this mega winning bid by the Tata Group would really mean any “business sense” at a time when this white elephant is being acquired.
The other airlines in the country and globally are bleeding and are facing turbulence because of the COVID-19 pandemic, which has eroded the profits in view of the rising cost due to new restrictions clamped by the Central and State governments besides global agencies.
Given these not-so-favourable conditions and circumstances, a deep diving of the successful Rs 18,000 crore ($2.4 billion) winning bid by the Tata Group provides a mixed bag of reactions. The recent media briefing by Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey, has thrown up more queries rather than providing answers.
Without mincing words, Capt. A. Ranganathan, a Chennai-based seasoned former airline instructor pilot and a former aviation industry advisor to the regulatory body, Director General of Civil Aviation, said the present move by the Tata Group will not make any “business sense” at least for the next four years. Till 2025, the aviation sector in India has to work towards a rebound to its past glory, after being battered by COVID-19, in the last two years since early 2020.
“Will the Tata Group be able to weed-out the kick-back culture and bring about vast improvements and drastic changes in the way airline has to function, by infusing the much-required financial support, and bring in professionalism to regain its past glorious days of providing customer delight?” Capt. Ranganathan queried back. He said this massive clean-up exercise requires a new breed of talents with previous airline experience to chalk out a new flight path ahead.
Highlighting some of the grey areas of Air India, Capt. Ranganathan said much lies ahead with the new management of the airline, as they must settle the older issues without getting stuck in any new legal tangle and settle huge dues to various vendors, Airports Authority of India, and other connected agencies.
The other major area where the top management must pay serious attention is to revisit the present “current leasing charges” agreement made with the aircraft leasing companies since there has been accusation on the “extra leasing charges” made in the existing aircraft leasing agreements.
“The new management has to read between the lines of the present aircraft leasing agreement especially its cancellation clause of the existing fleet of aircraft,” Capt. Ranganathan said, adding that the present fleet of 141 aircraft, most of which are serving the carrier for nearly 20 years.
While strongly advocating for a new policy level explanatory note by the Ministry of Civil Aviation for this exclusive mega disinvestment plan in the light of Tata Group taking controls of Air India, the Tata Group new management must also provide for newer demands of the generation next globetrotters, besides earmarking funds for replacement of aged fleet of aircraft.
Under the present sale agreement, Tata Group will not be able to retrench any staff for a period of one year and ensure provision of retirement benefits. In such a scenario, Tata Group is in for a bumpy ride ahead since many of its employees (many of them 55+ years) will be continuing in the pay rolls, which are sure to dent the profit margins of the airline. Air India’s present total staff strength is 12,085, of which 8,084 are permanent and the rest are on contract. Air India Express has a total of 1,434 employees under its fold.
To do the tight-rope walking and cut-down all overhead expenditure and unnecessary costs, the Tata Group’s new management for Air India must even revisit the per aircraft employee-ratio positioned for quick turn-around of the aircraft from respective destination-bases.
Meanwhile, it is reliably learnt that the Civil Aviation Ministry has a separate sale plan for Air India’s subsidiary airline, Alliance Air, and it does not form part of the current sale agreement with the Tata Group.
The Tata Group takes control of Air India with a list of standstill obligations, which would certainly have an impact on the future business decisions of the airline. The Tata Group cannot make any capital commitment or give out large contracts, cannot exceed expenditure of Rs 50 crore ($6.6 million), and instead only do normal business.
Having enumerated the formidable challenges ahead of Air India’s new management, former Executive Director of Air India, Jitender Bhargava, exudes utmost confidence and optimism over the Tata Group’s take over of the national flagship carrier.
“The Tata Group’s winning bid must be viewed in the current Air India’s perspective, even though it is a belated realisation. It is a good call by the Tata Group. Otherwise, Air India would have gone into oblivion”, said Bhargava.
“I see the Tata Group winning is not only good for Air India but for the aviation sector as a whole, since Air India joining the Tata Group stable will automatically provide the Tata Group the mega airline ownership status,” Bhargava said.
Given the Tata Group’s established status in the corporate world, Bhargava feels that the professional leadership and infusion of funds will provide a booster dose and lift the sagging morale of its loyal workforce. “This will result in higher growth at a much faster pace especially in providing the long-haul connectivity.”
To quote the Tata Group’s chairman emeritus Ratan Tata himself, who tweeted soon after the official announcement, “It will be a considerable effort to rebuild Air India though at the same time it will provide a very strong investment opportunity to the Tata Group’s presence in the aviation industry.”
The Tata Group owns 84 per cent share in Air Asia, which has a market share of 5.2 per cent and 51 per cent stake in Vistara, which has a market share of 8.3 per cent. Air India’s market share is 13.2 per cent. And with this winning bid, Tata Group could emerge as the second biggest player after IndiGo by controlling 26.7 per cent market share.
The sale of Air India is one of the biggest reforms in the aviation sector, according to Kapil Kaul of CAPA India, a Delhi-based aviation consulting firm. However, he strikes a cautionary note: “there is a long road ahead for rebuilding Air India, which would require long term and patient capital strategic decisions.”
Will the new management be able to restore J. R. D. Tata’s legacy and bring back the golden moments of the legendary visionary? Will the move by the Tata Group to bring back Air India to its fold be a major drain on its mega business conglomerate kitty? Only time can provide tangible answers.
For this, the discerning passengers, especially the loyal globetrotters of Air India, will have to “wait and watch” how the new breed of professional leaders are navigating the turbulence and ensuring safe and smooth take-off and landings.
Will the azure skies see a new Air India and the iconic brand and its ever-popular logo, the Maharaja, only the top echelons of the Tata Group can bring in the much-needed cheer to its loyal customers and the growing new breed of flyers.
(The writer is a Chennai-based aviation journalist, twice nominated for the global “Best Decade of Excellence Award for Aviation Journalism”. He had served in The Hindu newspaper for over two decades)