Air India (AI) is set to return to private management marking the formal end of the government of India's (GoI) efforts at running airlines. Media reports indicate that the AI could be formally handed over to the Tata Group this month itself. The news agency ANI quoted an email by AI's Director, Finance, Vinod Hejmadi, in which he said that AI's disinvestment would take place on January 27.
Originally founded as Tata Airlines by JRD Tata in 1932, it was renamed Air India in 1946 and started international flights to Europe in 1948. Air India quickly earned worldwide fame for its quality of service, engineering prowess and quirky advertising campaign. Indeed the airline's 'Maharajah' mascot conceived in 1946 by Bobby Kooka, Air India's Commercial Director and Umesh Rao, an artist with J Walter Thompson Ltd., Mumbai, remains one of the most identifiable aviation mascots even today.
Successful Sale
The GoI's efforts to disinvest from AI finally came to fruition in October 2021, with an INR 18,000 crore bid from Talace, a wholly-owned subsidiary of Tata Sons, for the GoI's 100% equity shareholding in Air India along with equity shareholding of Air India in Air India Express Limited (AIXL) and Air India SATS Airport Services Private Limited (AISATS). AISATS provides in-house ground handling facilities at key metro airports in Delhi, Bengaluru, Hyderabad, Thiruvananthapuram and Mangalore.
AI's non-core assets, including land and building, valued at INR 14,718 crore, were not part of the deal and transferred to GoI's Air India Asset Holding Limited (AIAHL). AI is also owed over INR 200 crore by various government departments and autonomous bodies (as of November 30, 2021).
AI's land and buildings at the Delhi and Mumbai airports and its corporate office, which are core assets for running the airline, will be available to Talace on a right to use basis for a limited period. AI also owns an extensive collection of artwork, including 4,840 paintings and 2,390 other objects. However, there has been no estimation of the value of these items as of date.
Monumental Challenge
Returning AI to its former glory will be a challenging task for the Tata Group which already has a majority stake in full-service carrier Vistara and Low-Cost Carrier (LCC) Air Asia India. AI had run up losses worth over INR 60,000 crore since 2007 after its disastrous merger with Indian Airlines and received government support worth over INR 110,000 crore to keep it afloat over the past decades. The Indian commercial aviation sector continues to be a lossmaking one, and according to the Ministry of Civil Aviation (MoCA), estimated losses of airlines in India in FY21 stood at INR 19,564 crore, and in the period between April-December 2020, Indian carriers incurred financial losses amounting to INR 16,000 crore.
AI also suffers from a very high employee count, with the total number of employees across AI, AIXL and AISATS at 17,984, out of which 9,617 are permanent employees. Over the next five years, it is estimated that approximately 36% of the airline's permanent employee strength will retire. The disinvestment of AI has been made on a 'going concern' basis, and its employees shall continue to remain employees under the terms of the agreed SPA signed between the GoI and Talace on 25 October, 2021. Under the terms of the agreement, none of AI's employees can be retrenched for a period of one year from the closing date. However, they will be eligible for a voluntary retirement scheme with maximum benefits in case of retrenchment in the second year from closing. In addition, three percent of AI's equity shares will also be offered to the airline's permanent employees as Employee Stock Ownership Plan (ESOP).
Growth Potential
Air India operates on international and domestic sectors as a full-service carrier, while AIXL operates from India only to destinations in the Middle East and South-East Asia as an LCC. AI's direct long-distance connections to the USA and countries such as UK and Australia are valuable to its new owners, and AIXL and Alliance Air also offer future growth possibilities. AI covers 56 domestic and 42 international destinations and offers 75 additional destinations through its secondary network of codeshare operations.
Before the pandemic in 2018-19, AI and AIXL carried a combined total of 26.2 million passengers. Both carriers had an almost 51% share of international traffic to/from India amongst Indian carriers. However, compared to its international competition, AI's share of international traffic to/from India fell to 18%.
AIXL, having started commercial operations in April 2005, celebrated its 15th anniversary in 2020 and reported its highest ever net profit of INR 412.8 crore for the financial year ending March 2020. AIXL's net profit in 2018-19 was INR 169 crore. AIXL also announced that its cargo revenue had hit an all-time high despite reduced operations, operating over 18 cargo charters and transporting 266.4 tonne of supplies from Kerala and Mumbai to countries in the Middle East. The airline operates cargo flights from Kochi Airport to Abu Dhabi, Bahrain, Dubai, Muscat, Sharjah, Doha Kuwait, Dammam, Riyadh, Singapore, and Malaysia.
Fleet Management
The combined fleet of both carriers totals nearly 140 aircraft. AI's 27 A-320 neo jetliners fleet is approximately three years old, while its 27 B-787s are nearing six years. Other aircraft in its fleet are A319s, A321s, widebody B777-200 LRs and B777-300ERs. Two of AI's B777-300ERs, which are exclusively reserved for VVIP government travel, have been paid for by the government. A substantial portion of AI's fleet is on finance lease/bridge loans or sale and leaseback with only some aircraft owned by the airline.
AIXL operates only B737- 800 NGs, and Boeing's newer 737 MAX could be a contender to modernise this fleet. AIXL's existing fleet of B737- 800 NGs are with the airline as a mix of aircraft that are fully owned and those on finance lease and dry lease (leased without pilots).
Alliance Air which started operations in April 1996, now operates an estimated fleet of 18 ATR 72-600 turboprop Regional Transport Aircraft. Alliance Air has been awarded 95 routes as part of the 'Ude Deshka Aam Nagrik' (UDAN) Regional Connectivity Scheme and provides connectivity to Tier-II & Tier-III cities.