Air India-Tata deal: A ‘winner’ or a calculated gamble?
Maharaja returns to Tatas with a fleet of 141 aircrafts, 55 overseas destinations, 3,000 parking and landing slots but also with 13,000 employees and 55,000 retired ‘Air Indians’ entitled to benefits
Sixty-eight years after being nationalised, Air India, it was announced on October 8, was being sold back to Tata Sons. Started in 1932 by JRD Tata, the national carrier is making a homecoming of sorts.
With taxpayers contributing over Rs. 1.1 lakh crore to support the loss-making behemoth since 2009-10, Air India’s privatisation has evoked mixed reactions. While critics have questioned the ‘pittance’ that the Tatas would be paying the government, the latter hopes the sale would relieve some fiscal pressure.
While the media was quick to credit the 83-year-old Ratan Tata for what is being seen as the Group’s boldest move ever, cynics questioned his track record and pointed to other takeovers that he had steered, having failed.
The mood in Bombay House has been sentimental, but not without a resurrection plan that saw the winning bid – an enterprise value of Rs. 18,000 crore, of which Rs. 15,300 crore is for debt to be retained and Rs. 2,700 crore for cash consideration come through.
Air India has been operating on a high-cost structure. To put this in perspective, over the last decade, the government has infused over Rs. 1.10-lakh crore of capital even as the airline suffered a daily loss of over Rs. 20 crore. The sweetener in this deal is that it does not burden the new owners with the Maharaja’s entire legacy debt.
Making Air India entirely profitable again is the long-term goal, which admittedly will be a stiff challenge in view of the Rs. 9,500 crore loss the carrier suffered in the financial year ended March 31, 2021.
Employee productivity and efficiency, believes former Air India Executive Director Jitendra Bhargava, author of The Descent of Air India, will be the key. Bringing in professionalism and better service that the other Tata airline, Vistara, is known to offer will have to take precedence over a possible integration between AI, Air India Express, Vistara and Air Asia India, which will have to wait because the new owners cannot offer a voluntary retirement scheme for the next one year.
“The winning bidder will retain all employees, which means they will not retrench anybody for a period of one year. Thereafter, for the second year, if anybody is to be retrenched or removed, they will be offered a VRS,” newly appointed Civil Aviation Secretary and the outgoing Air India CMD Rajeev Bansal says.
Bhargava recalls tales that say Air India has two people to do the job of one. Again, there are some 13,000 employees in Air India and Air India Express put together. Letting some of them go and cutting down staff will not be easy and there is a huge cost attached to rolling out a VRS scheme.
The role of the employees’ unions, which have welcomed the new owners, will also be critical. An employee break-up offered by Air India shows the national carrier to have 9,000 permanent employees, 4,000 contractual staff and some 2,800 on deputation from other companies. The bid document also mentions that the successful bidder will continue to offer medical benefits and honour other existing benefits to retired employees numbering some 55,000.
Air India offers Tata economies of scale and instant growth. AI and AI Express, serving 55 overseas destinations with a 141-aircraft fleet mix of both wide-body and narrow-body aircraft, the Tata’s get control over 3,000 landing and parking slots at international airports, including Heathrow, membership of the 26-airline Star Alliance, and an unparalleled global reach. The sale gives the Tata group a larger combined share of almost 27% of the domestic traffic. The fleet and slots are something that bring along instant value to the buyer.
Vistara has been recently growing internationally. The airline has a fleet of 48 aircraft, including 37 Airbus A320, three Airbus A321- neo, six Boeing 737-800NG, and two Boeing 787-9 Dreamliner aircraft, and has flown over 27 million customers since starting operations, says an airline spokesperson.
So, while the gains are a given, it is the game plan and market dynamics that will determine the actual time it takes for the Maharaja to make an actual turnaround.
Air India’s merger with Indian Airlines has been criticised by many, including Lohani who says it was like “mixing water with oil”. The synergy never really showed on the ground with original “Air Indians” still referring to their colleagues who came from the domestic operator as “Indian Airlines people”. The Tatas might consider a merger between Vistara, Air Asia and Air India. The mistakes of the Air India-Indian Airlines merger are there to be avoided.
Bhargava is hopeful that the Tatas will ensure Air India’s revival and make it into one of the best airline services worldwide. Reorientation of work practices is one area where Bhargava believes lies the need for immediate attention.
Quoting the title of a book by American coach and author Marshall Goldsmith, What Brought You Here Will Not Take You There’, he speaks of the future of employees in Air India under the Tatas. “If they are able to reorient the work practices, made employees efficient and they deliver, there should be no risk to the job. But if you are a laggard then why must anybody have sympathy for you,” Bhargava asks.
Air India is also expected to do away with some departments like the Parliamentary Cell or Hindi department while the premium cutlery and wines that were once served in the First and Business Class will make a comeback.
All these steps are crucial to making Air India a world-class Indian carrier again, is the current sentiment in Bombay House.