The Maharaja’s new flight path

Ashwini Phadnis | Updated on December 21, 2020

Is the Maharaja finally going to get new clothes? This is the question on everyone’s lips after “multiple” interested parties put in their Expressions of Interest (EoIs) for Air India on December 14.

At the moment there is confirmation about only two bids — Tata Sons and a joint bid by some AI employees and US investment firm Interups. However, getting the EoIs is just the first step in a long process to find AI a new owner.

Kapil Kaul, Chief Executive Officer and Director, CAPA Advisory, expects the successful bidder to be announced by June and the transfer to private ownership by December next year.

However, Gustav Baldouf, former Chief Operating Officer, AI, feels it will be a long road to disinvestment and will take time.

In the current scenario, experts feel the Tatas are a better choice as AI’s new owner. Especially if you factor in media reports that the Tatas are in talks to buy out Tony Fernandes, the owner of AirAsia Berhad and their partner in AirAsia India.

If that happens, the Tatas can look at integrating Air India Express (AIEXL), AI’s efficiently run low-cost arm that is also being divested, and run low-cost operations not only in India but also abroad. AIEXL is largely focused on flights between Kerala and West Asia.

In a couple of years, the new owner can look at strengthening AI as well as focusing on long-haul flights. According to the International Air Transport Association, long-haul international air travel will return to pre-Covid-19 levels by 2024 and this is where the Tatas, if they buy AI, will have an edge. AI is the only Indian carrier flying non-stop on the India-San Francisco, Delhi-Washington and India-Toronto routes. With the India-US market worth $7 billion, the Tatas can use Vistara (in which they have a 51 per cent stake) and wean away a larger share of the market to the Indian side. The same holds for the India-Australia market.

Baldouf says the new Air India owner has an additional advantage of keeping the specific traffic rights (grandfather rights), a lot of barely or unused assets as well as leveraging a globally known brand name.

On the flip side, the new owner will have to look at labour issues, reinvesting in new aircraft and providing proper inflight services, all of which will cost a lot.

But even as AI’s divestment process is underway there are many who believe the government has chosen the wrong path.

An Initial Public Offering would have been better, they feel, as it would “have kept the shareholding with the Indian public.”

Others feel that the government should wait for the economy to pick up before proceeding with the sale, in order to get a decent price.

However, according to Jagannarayan Padmanabhan, Director and Practice Leader — Transport and Logistics, CRISIL Infrastructure Advisory, the potential upside of waiting for the market to recover before initiating the divestment will not reap any real benefits for the government.

Published on December 21, 2020

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