If you thought that ‘the sky is the limit,’ you are wrong. Some people, especially those wedded to aviation, believe ‘the sky is the home.’
THE AIRLINE INDUSTRY throws up heroes and villains. In 2008, BA Flight 38 was just two miles from Heathrow when its engines failed. The plane landed around 270 metres short of the runway. It was a write-off, but only one passenger was seriously injured. The pilot’s name: John Coward!
Nearer home, but farther back in time (1986), was the extraordinary stoicism of airhostess Neerja Bhanot, who died while saving passengers on Pan Am Flight 73, which had been hijacked by terrorists just two days before her 23rd birthday. She was shot while helping passengers escape through the emergency exits.
So what is the context? Well, it is the homecoming of Air-India to its original promoters, the Tatas. Mark it; the Indian airline industry has come a long way from being in private hands, then in government control and again back to private players.
Flashback
India’s date with the skies began in 1932 with the founding of Tata Air Services by JRD Tata. The airline grew from being a small freight carrier to a commercial passenger airline and was renamed Tata Airlines in 1938. Post-independence, the government took a 49 per cent stake in it and rechristened it as Air India. By 1950, several airline players emerged. In 1953, Congress nationalised the aviation industry. All the airlines were merged under Air India and Indian Airlines, the first focusing on international routes and the second on domestic travel. In 1978, the Janata government removed JRD as chairman.
In 1994, the Narasimha Rao government deregulated and allowed private sector into the industry. This brought in Jet Airways, Damania, Deccan, Modi Luft, NEPC, Sahara and others in quick succession. It was the time when everybody and their uncles got into airlines. Deccan Airways of course was the game changer ushering low-cost airline to India so much so that in the 2000s, budget airlines became the order of the day. Some folded up others got merged and today, Indigo is the market leader with a 57 per cent market share and the Maharaja, aka Air India, is a pale shadow of its former self.
The sale that failed
As long as JRD was around, Air India had a glorious run. But monopoly and government control dented its reputation internationally. In India, it was Hobson’s choice. Once the industry was opened to private players, the beginning of the end began. Diminishing customer service and cutthroat competition brought Air India to its knees. Over the years, beginning with the mid 1980s Air India became a symbol of what can go wrong when a government gets into the governance of business.
After years, the government decided to sell its 100 per cent stake in Air India. The process began in 2017, but not unsurprisingly there were no takers. The sale plan was revived in April 2021 and this time thanks to a slew of tax concessions and loan reductions that were thrown in, two consortiums bade and the Tatas emerged the winner. The consideration will be Rs 18,000 crore.
Is it a win-win?
In one way, the deal makes some sense for the Tatas. They are paying up only Rs 2700 crore in cash. The balance is the promise of repayment of a portion of debt. The purchase will give the group access to more than a hundred planes with pilots and crew and control 4400 domestic and 1800 international landing and parking slots at airports, including 900 cities abroad. Tatas would also fully pocket the low-cost arm Air India Express and take a 50 per cent stake in AISATS, which provides cargo and ground handling services.
But can the Group, with nothing much to show on the airline front, turn around such a sinking ship? Experts believe that the Tatas will have to deploy a billion dollars to improve reservation systems, upgrade the fleet and, of course, organisational culture.
The Tatas have a history of picking up acquisitions and doing things from the heart than the head. The continuation of Nano beyond its expiry date is a case in point. So are some of its international acquisitions. In fact, these were the sources of conflict between patriarch Ratan Tata and his one-time prodigy Cyrus Mistry. The other point is also that the performance of the Tata’s two airlines Air Asia and Vistara are nothing to write home about.
Impact on the aviation sector
The competitors aren’t exactly happy. Indigo CEO reportedly said: “having a large player funded by taxpayers is not fair competition for us.” He also believes that the new entrant will take 2-3 years to scale up operations and, therefore, will be less of an immediate competitive threat. How much of this is to be taken at face value is a question. The deal was available to everyone and not just the Tatas.
Trade unions are arguing that this is a free gift to the Tatas from the government. Well, for argument’s sake, let’s assume that they are right. Let’s take that it is “far less amount than what has gone into building it up into a giant carrier.” But the value of an asset is not what was spent on it but what a willing buyer is ready to pay for it.
Last words
Old timers remember Air India for its excellent service when it was with the Tatas. The Group is known for value and fair play though a bit of dent took place in the Air-Asia controversy. The acquisition is likely to place the Tatas at number two in the pecking order in market share behind Indigo. Besting Indigo is not going to be easy.
Incidentally, Tata has Vistara, a JV with Singapore Airlines Ltd. for full-service domestic and international flights. They have a majority stake in a budget carrier with Air Asia Group. Consolidation should be the logical step sometime in the future.
Will the Maharajah be restored to its former glory? It won’t be easy coming as it does with the culture of a beaten PSU. The Group needs strong professionals, solid leadership, deep pockets and an unadulterated passion for airlines if it wants Air India to regain its past glory. If it does that, no one will be happier than the Indian customer. – V Pattabhi Ram with inputs from Oviya Rengesh
