Logistics

Tatas likely to face turbulence while managing Air India: Experts

Forum Gandhi Mumbai | Updated on December 17, 2020 Published on December 17, 2020

Tata Sons will find it difficult to turn around Air India, even though there are synergies between group companies and the Indian airline.

“Whoever acquires Air India will need to put in tens of thousands of crores of capital to clean up the balance sheet; pay off liabilities that come with the airline; and to fix, grow, and bring the airline to a point where it can be a meaningful and an effective global competitor,” Sanjiv Kapoor, former chief strategy and commercial officer, Vistara and former COO, Spicejet told BusinessLine.

Shakti Lumba, former executive director, Alliance Air, Vice-President of ICPA and V-P, Operations, IndiGo said the Tata group will be under greater financial stress. “ I am no finance expert, but it is simple math. The Tata Group had a net debt of ₹1.39 lakh crore in 2019 and only TCS was making money, while the rest were all losing money. They will be taking on ₹1.25-lakh crore liability of Air India, ” Lumba said..

However, Koushik Jagathalaprathaban, Partner, AT-TV said that the Tatas are never in a hurry to generate profits; plus, the group has deep pockets. “The Tata group is a patient capitalist. It does not expect immediate profits. It gives the time for the companies to brew, make its space in the industry and generate profits.”

ALSO READ: Tatas want to pilot AI again, submit EoI

Change in work culture

According to Lumba, there are other challenges including high flight time costs, high tail-to-employee ratio, and employee and equipment productivity is low. There could also be gaps in work culture between the current Air India staff and Tata group.

Air India has a huge employee base and unions, too. The company provides a lot of benefits to its employees even post retirement, including pension, discounts on tickets among others. In addition, being a government airline, it has been providing benefits to government employees as well, along with tickets on credit. Managing all that will be a challenge, said experts.

“But by far, their greatest challenge will be rewriting all policies which were drafted decades ago,” Lumba explained.

Many believe that the Tatas’ decision is based on the emotional connect with the airline that was started by JRD Tata.

An industry expert said requesting anonymity: “The Tatas are extremely pressured by the government to buy Air India. If the Tatas are going to take such huge risk, they could expect a more favourable policy regime,” said a regulatory expert.

To be fair, Air India has good assets, infrastructure, slots and bilateral agreement. If they win the bid, Tatas will get access to top notch MRO infrastructure of Air India and its real estate.

According to Jagathalaprathaban, “The Tatas have companies like Tata engineering, Taj Sats and IHCL among others which can benefit with Air India becoming a group entity.

Tatas already have two airline ventures — Air Asia and Vistara.

ALSO READ: Our bid for Air India will surprise everyone: Interups

Potential for merger?

Jagathalaprathaban believes that consolidating Air India Express and AirAisa, and Air India and Vistara, gives the Tata group the best of both worlds — a low-cost carrier and a full-service carrier. “Consolidation will help in some manner and a combination will command almost 23-25 per cent of the market,” he explained.

However, Vimal Kumar Rai, Founder and MD at TRACE Consulting Services believes, it would be a mistake to consolidate the three airlines.

“It’s difficult enough trying to turn around something like AI. Throwing Vistara and Airasia into this will only make it a khichdi of unpalatable proportions. You cannot build your own culture and strategy on the backs of integrating two others that are very strong already,” he said.

“Every other ‘practical’ consideration — aircraft, slots, manpower etc — will eventually be irrelevant in the medium to longer term because all of these can be adjusted fairly easily. So there really isn’t a very strong case for a merger at all,” Rai said.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on December 17, 2020
This article is closed for comments.
Please Email the Editor