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Minhaz Merchant

Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express group

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Tata’s Air India Challenge

So, 68 years later, has Air India finally come back home? And what are the challenges that lie ahead?

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October 15, 1932, was a typically warm, muggy day in Karachi in undivided India. JRD Tata, the 28-year-old heir to the Tata business empire and the first licenced pilot in India, strapped himself into Imperial Airways’ single-engine de Havilland Puss Moth aircraft. He took off from Karachi to Mumbai carrying a consignment of air mail. Thus, modestly, was aviation history made in the subcontinent.

JRD would become chairman of Tata Sons in 1938 at the age of 34. The fledgling airline was renamed Tata Air Services and then Tata Airlines, before it acquired its current identity, Air India, in 1946. Seven years later, in 1953, in a fit of pique, Prime Minister Jawaharlal Nehru’s government nationalised Air India. 

So, 68 years later, has Air India finally come back home? And what are the challenges that lie ahead? 

There are several. But weighed against them are Air India’s invaluable assets. It holds 2,738 landing slots around the world across 42 foreign destinations apart from 4,400 slots at airports in India. Air India Express, part of the privatisation deal, has 651 weekly slots, including at Singapore and Dubai. The Air India group has a fleet of 153 aircraft: 128 in Air India and 25 in Air India Express. Add to that the Tatas’ fleet in Vistara (47 aircraft) and AirAsia India (34 aircraft) and the Tatas will now control 234 aircraft. 

That’s not all. 

Air India has more than 1,500 well-trained pilots and 2,000 experienced engineers. 

They will be a welcome addition to the human resource talent bank of Vistara and AirAsia India. 

The challenges for the Tata group are two-fold. First, to integrate Air India and Air India Express with Vistara and AirAsia India. Second, to break even in India’s hypercompetitive aviation sector. 

Merging Air India and its associate and subsidiary firms with Vistara and AirAsia India will cause initial disruption. But once fully integrated, the economics of scale will kick in. 

Singapore Airlines’ 49 per cent equity stake in Vistara will be diluted significantly in the merged entity, a prospect the foreign carrier may baulk at. Negotiations are ongoing. Nonetheless, Singapore Airlines’ presence in privatised Air India will give it global gravitas. 

The elephant in the room, of course, is Indigo Airlines. It commands over 50 per cent of India’s aviation market share. Indigo has a fleet of 274 aircraft – all Airbus 320s. A Tata-run Air India, merged with Vistara and AirAsia India, though won’t be far behind with 234 aircraft. 

The key metric is market share. Air India currently has a 16.5 per cent domestic market share, less than one-third Indigo’s. (Its international market share at 18.6 per cent, however, is the highest of any Indian carrier.) Adding the domestic market share of Vistara (8.1 per cent) and AirAsia India (3.6 per cent) to Air India’s 16.5 per cent, the merged Tata airline entity will command an overall Indian market share of over 27 per cent. Obviously, there will be some cannibalisation among the three integrated Tata airlines. 

But once the dust settles and professional management gets to grips with a privatised Air India, the Tatas can look forward to consolidating both their domestic and international market share.

That spells trouble for the rest of the Indian aviation industry. Between them, Indigo and Tata-Air India will corner over 75 per cent of India’s domestic aviation market. Indigo may lose a few percentage points to settle at around 50 per cent but SpiceJet and Go First (formerly GoAir) could be severely hit.  

Newcomer Akasa Airlines, founded by former Jet Airways CEO Vinay Dube (and partly financed by Rakesh Jhunjhunwala) and the relaunched Jet Airways could complicate the picture. Is there room in India’s aviation sector for six major airlines? With Spice, Go, Jet and Akasa fighting for around 25 per cent of the market pie that the behemoths – Indigo and Tata-Air India – leave for them, we might see some culling. 

Tatas are fortunate that the terms of the government’s new privatisation deal do not burden them with most of Air India’s legacy debt. But with aviation turbine fuel prices high and passenger traffic only gradually recovering from the pandemic-induced slowdown, it will be a challenge to make privatised Air India profitable again. In 2019-20, the airline recorded a loss of over Rs 8,000 crore. For the year ended March 31, 2021, its loss was a touch over Rs 9,500 crore. 

Indian flyers, however, should welcome a Tataowned Air India. Over the past two decades, the airline has lost ground to rivals like Emirates Airlines and Qatar Airways on its lucrative international routes. 

The last straw that almost broke the airline’s back was the ill-advised merger of Air India with Indian Airlines under the UPA-1 government in 2007. The incumbent Civil Aviation Minister Praful Patel at the time has escaped censure for what can only be described as an act of great irresponsibility. 

Air India never recovered from the blow. Following the disastrous AI-IA merger, several of its profitable routes to the Gulf were gifted to carriers in the Middle East.

In 2001, a lobby led by the owner of a then-leading airline scuppered the Tatas’ entry into civil aviation in partnership with Singapore Airlines. In 2018, officials in the ministries of finance and civil aviation conspired to kill Air India’s first serious privatisation attempt by imposing onerous conditions on the deal. Air India remained a government fief for officials to feed off. 

The Tatas have to put this pernicious history behind them. They should focus on the positives: excellent pilots and engineers, invaluable landing slots, solid ground operations, and legacy sovereign bilateral rights at international airports including Heathrow London and JFK New York.

For passengers, the sky is now the limit. They will get two professionally operated airlines, Indigo and Tata-Air India, run with private sector efficiency. The competition will lead to lower ticket prices, better service, modern airport lounges, and special offers. Ratan Tata is the son of JRD’s contemporary Naval Tata. Like JRD, Ratan too is a skilled pilot. Air India’s homecoming couldn’t have landed in safer hands.

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tata group air india magazine 27 Sep 2021