Maharaja takes off

The strategic sale of Air India to the Tatas by the Centre is a watershed moment that is significant for many reasons. First, it breaks the jinx on strategic sales of PSUs after almost two decades — the NDA government headed by Atal Bihari Vajpayee was the last one to privatise a PSU. Second, it gets a demon off the back of the Narendra Modi government, one which was draining resources and taking the attention of bureaucrats and ministers away from other important issues in the civil aviation industry. Third, it is a clear signal of the commitment of this government to reforms — Air India was a litmus test given the complexities involved in its sell-off such as the huge pile of debt, the massive accumulated losses, powerful employee unions and the sorry state of the airline industry globally, post-Covid. The transaction required careful, meticulous planning and untangling of crossed wires. The successful privatisation should give a leg-up to the strategic sale process of other, less complex PSUs.

The Centre has set two notable benchmarks in the Air India transaction. First, enterprise valuation has been used to arrive at the bid value. This is the norm in M&A deals. Second, the non-core assets of the company are not part of the sale; they have been hived off to a special purpose vehicle, along with a part of the debt. Air India owns valuable real estate in Mumbai, Delhi and other cities and it would have become a point of controversy had these been transferred to the buyer along with the core assets. The Centre seems to have learnt from the privatisation of VSNL and Hindustan Teleprinters two decades ago. Though it is richer by just ₹2,700 crore in cash, the Centre is now absolved from the responsibility of constantly pumping in cash into Air India. Second, the bureaucracy can now focus on larger policy issues that plague the airline industry without worrying about running an airline. The privatisation should be seen from this prism.

It must be a mixed sentiment at Bombay House. The Tatas are obviously thrilled that their family heirloom is back. There is a tremendous sentimentality associated with Air India for the Tatas given that it was originally Tata Airlines. The happiness, however, is obviously tempered with the realisation that they now have the onerous task of turning around the airline. Air India, despite its fall in recent years, still enjoys tremendous brand equity and owns prized assets in the form of landing slots in marquee airports across the world and flying rights on some of the most sought-after routes. It’s technical resources and staff are highly valued though the fleet itself may need modernisation. But the airline also comes with accumulated losses of about ₹70,000 crore apart from the ₹15,300 crore debt transferred in the sale. The Tatas will need to keep investing in the airline and also find a way to harmonise its functioning with their other two airline ventures. The challenge is real but if anyone can pull it off, it is the Tatas.

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