The Story of the Indian Aviation Industry (Part 3)
This article was originally supposed to get published in the 13th edition of The 8:10 newsletter. But, a beautiful acquisition of an entity belonging to the subject of this article welled the author’s eyes with tears of happiness and she decided to postpone this publication in order to follow up with this enchanting process. And as with all the good things-they do tend to multiply after being distributed. So the author also decided to distribute her happiness by welcoming a co-author to the final part of this article series!
The ending of this article series is different from what I initially thought it would be. What was initially destined to be a paragraph full of snag GoI regulations on our flag carrier has now taken a new, exciting grab altogether!
Airlines in India
Apart from Air India, the flag carrier of India, we also have some other airlines. Basically, the airlines like IndiGo, AirAsia (India), GoFirst, SpiceJet, Vistara and so on are the known carriers which have a vast network of routes throughout the nation. India also has some regional airlines like Star Air, Alliance Air ** etc which have a fascinating local network of routes. Apart from these civil commercial airlines, we also have the ever-essential cargo airlines like SpiceJet Cargo (known as SpiceXpress), DHL India, Blue Dart Aviation Ltd. and so on operating in India.
Airlines like IndiGo fall under the category of low-cost carriers which provide tickets at a better rate by eliminating services like in-flight meals, entertainment etc. Vistara, on the other hand is a full service airline which offers the aforementioned services that are excluded by the low-cost carriers.
As the names suggest, Low cost and Full service are two entirely different business models.
Air India once used to be one of the best full service airlines in the world and while it is sad to see the state in which it has ended up today, we can now rejoice- all thanks to the dawn of the homecoming of Air India!
The one with Air India
The inordinately long process of the government trying to privatise Air India has finally culminated. Air India, earlier known as Tata Airlines, was launched in 1932 by the legendary industrialist JRD Tata and was later nationalized in 1953. In 1960, the first Boeing 707-420 aircraft was introduced and Air India started using jets, making it the world’s first all-jet airline. For the next few decades, the airline achieved remarkable success and catapulted to fame as one of the finest airlines in the world.
Then why did the Government try to divest its stakes in Air india?
The entry of private carriers in the 1990’s and a rush of competition in the mid 2000’s resulted in the deterioration of the Maharaja in domestic and international markets. The airline also started acquiring a poor reputation for its mediocre service and hospitality. Attempts to start selling the government’s stake began under the Vajpayee government in May 2000. However, the operation was not successful. The years after that, the government tried to keep the airline going by undertaking a series of measures. Despite such endeavours , the airline kept experiencing hardships. The first divestment initiative was introduced by the government in 2018, but the government failed to receive even a single bid.The disinterest in the airline was largely due to two reasons- The Modi government wanted to retain a minority stake in the airlines and wanted the bidders to bear nearly 70% of Air India’s debt.
So what changed this time?
The government invited preliminary bids to divest its 100% stake in Air India. The buyer was to take over Rs 23,000 crores of debt out of a total of Rs 60,074 crores. In the attempt made to divest in 2018, the government wanted the buyer to take on Rs 33,392 crores of the debt. As per the divestment plan, the rest of the debt was to be transferred to a special purpose vehicle called Air India Assets Holding Limited. The last date for submission of the bids was 13th March and the qualified bidders were notified on 31st March.
Eligibility Criteria
The government eased the criteria for prospective bidders. Earlier a bidder needed to have a net worth of Rs 5000 crores. This was now reduced to Rs 3000 crores. The minimum shareholding in a confederation was eased to 10% so as to attract more bids. The majority ownership and control of the carrier should remain with an Indian entity. In accordance with the rules governing foreign direct investment, the foreign entities can own as much as 49% stake in domestic airlines. The chosen bidder was to ensure that 3% of the acquired equity shares of the company are offered to the permanent employees of Air India. The selected bidder should also ensure that the “Air India” brand is retained. Air India’s total debt stands at Rs 43,000 crores with an additional Rs 20,000 crores in the past two years due to the effects of covid on the industry. A debt of Rs 23,286.5 crores was to be absorbed by the winning bidder.
Tata does not always mean goodbye
“Air India Specific Alternative Mechanism” was the group of ministers who approved the winning bidder which was headed by home minister Amit Shah and included finance minister Nirmala Sitharaman, commerce minister Piyush Goyal and aviation minister Jyotiraditya Scindia.The bid by the Tatas was around Rs 3000 crores higher than the reserve price set by the government and Rs 18000 crores more than the offer from a confederation led by the owner of SpiceJet- Ajay Singh. Of the Rs 18,000 crores, the Tatas are set to pay Rs 2700 crores for the acquisition and take over Rs 15,300 crores of the airline’s debt. The Tata group also has to take a decision on how it will integrate Air India with it’s existing airlines- Vistara and AirAsia India. The government plans to hand the airline to the Tatas in another four months, with the process starting 15 days after the announcement of the result. The Tata group is set to take over Air India, marking a successful start to the Modi Government’s privatization programme and bringing an end to the decades long hunt for a buyer for the airline. “JRD Tata would have been overjoyed if he was in our midst today”, was the statement issued by Tata. “The Tatas will have the opportunity to regain the reputation and image it enjoyed in the earlier years.” Air India’s return to the Tatas marks a new dawn to the airline.
Footnote
**Alliance Air is a wholly owned subsidiary of Air India Limited which was founded in 1996 to enhance regional connectivity in the nation and was subsequently merged with Air India in 2007. As per the website of Alliance Air (which, by the way, is also merged with that of Air India!)The airline mainly focuses on ‘connecting Tier-2 and Tier-3 cities or those which link these cities to the metro hubs’- which basically implies that the airline is also diverting its attention to the UDAN scheme.
–Madhura Joshi (SYBSc 2020-23
–Mrunmayee Joshi (FYBSc 2021-24)