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S Ravi

The author is a practising chartered accountant and an independent director on many large public companies whose views and ideas have been instrumental in framing policy

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BW Businessworld

The Air India Homecoming. And The Road Ahead

It is a homecoming for Tatas, and for the Government, for whom disinvestment is one of the core agendas, disinvestment of Air India would be a catalyst in the process.

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The story of the Air India coming back to the Tatas has been the flavour of the season. It is an action precipitated by the continuously mounting losses that were hurting the economy and Brand India overall. Critics of disinvestment had continuously held out Air India as the prime example of why the budgetary disinvestment targets were unachievable. The challenging nature of the process, dotted with innumerable issues - debt profile of the company, unproductive assets and large number of employees – were in addition to the need to ensure industry focus as well as running the process transparently. The pandemic and lockdown only added to this. The failure of Jet Airways was an additional factor which needed to be kept at the back of the mind – especially in light of the plight of the employees & losses suffered by the creditors.  

The Government of India, DIPAM, Ministry of Civil Aviation, Ministry of Finance and the top management of Air India had their job cut out. It needed a concerted and coordinated effort from all involved to ensure success. Determining the debt retention strategy in the company was key right at the beginning as this could be an impediment; or even a deal breaker. Of the total debt of approximately Rs. 61,500 crores, the government has retained around Rs.46,200 crores, which will be transferred to Air India Asset Holdings Limited while the balance Rs.15,300 crore will be taken over by the Tatas. The change in Income Tax Sec 72A pertaining to allowing carry forward of losses and unabsorbed depreciation for strategic investments was a sweetener which served as an incentive for  prospective investors.

At their end, the Tatas designated a team that was continuously evaluating the potential sustainability and viability of the airline. They had to carry out due diligence and evaluate various operational, financial and legal aspects including assessment of air routes, market share, legal challenges, contingent liabilities, HR and lease management amongst others. The fact that Tata have already stake in Vistara and Air Asia served as a key factor – apart from the historical perspective – in spurring the Tata bid, given the likely economies of scale & instant growth of reach. Tatas would also have internally worked out a structure on integrating people, processes & technology.

Announcing the winner of the bid is just the first in the reform process. The process of handing over the management and operations is a task by itself. The management of Air India and Tata would need jointly put together a smooth transition road map given the people & geographical complexities involved.  The MoU for transfer gives protection to the employees for a year which would need to be factored into this granularly. At the same time the balance sheet management is an area of concern as credit would have to be raised on the basis of rating and this would be a critically important task for the management. The brand can ill-afford drop in market share, therefore going forward efficient IT integration, optimum utilisation of human resources and management of any potential litigation would have to be done with great attention to detail.

From the perspective of the Tatas, rebranding and enhancing market share will be key factor in the turnaround. The group is already engaging with advisors and a core group to advise them on the transition. With their rich pedigree and experience in the sector they have the ability to make this a success. Many were not comfortable with the thought of what has been considered a key national asset going in to the hands of a foreign carrier. Therefore it is a matter of satisfaction to Indians in general that a leading homegrown conglomerate has won the bid. It is a homecoming of Air India of the Tata group, and for the Government it serves as a much needed catalyst in the disinvestment process that remains one of its key agenda items.