In a business age where mergers and acquisitions are more common than ever, the recent one has made the world stand and stare in awe. The current bid Tata made to take over Air India for rs. 18,000 Crore has set the world in awe. After 68 long years, and despite the debt, Air India returns to Ratan Tata after a long striving period.
After an almost two-decade pause, the decision marks the resumption of the Centre’s privatization initiative.
Tuhin Kanta Pandey, the secretary of the department of investment and public asset management, and the secretary of civil aviation briefed the media on the number of financial bids received, the details of the sale process, and the status of existing personnel, among other things.
Apart from the 100% stake, the bid also includes a 50% stake in Air India SATS Airport Services Private Limited, the ground handling company.
The sale of Air India began in July 2017 and by December of last year, the government had received seven expressions of interest, according to the Finance Ministry’s Department of Investment and Public Asset Management (DIPAM).
On Friday, The legacy led by JRD Tata was awarded the bid to buy national airline Air India and step into the Indian Aviation Industry. More than half a century after ceding control to the government, the salt-to-software conglomerate made a successful bid of Rs 18,000 crore to re-acquire the airline. The winning proposal included a 50% investment in ground-handling company Air India SATS Airport Services Private Limited, in addition to a 100% stake in Air India and its low-cost affiliate, Air India Express (AISATS).
Air India has a total debt of 61,562 crores as of August 31, 2021, of which 15,300 crore will be taken.
Civil Aviation Secretary Rajiv Bansal ensured that the winning bidder will not be allowed to retrench any employee for a minimum period of one year. The employment if retrenched if done will lead to offering VRS (Voluntary Retirement Scheme). Along with those benefits, Gratuity and Provident fund (PF) benefits will also be provided to all the employees.
The high-profile sale is a victory for Prime Minister Narendra Modi, who has launched a major privatization strategy to address a mounting budget deficit, confirming his position that the government should stay out of most firms. Air India, Indian Airlines, and the Maharajah will all be acquired by the Tatas. Air India has 117 wide-body and narrow-body planes in its fleet, whereas AIXL has 24 narrow-body planes. Air India owns a substantial number of these aircraft.
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Air India has a distinct and appealing international footprint. The overseas market accounts for more than two-thirds of Air India’s total sales. It is India’s most successful foreign player, with a significant presence in North America, Europe, and the Middle East, as well as valuable slots and bilateral rights. More than 3 million people are members of Air India’s frequent flyer club.
Both Tata Sons and SpiceJet chairman Ajay Singh (in his capacity) made bids earlier this month. Last month, reports that Tata had won the bid were dismissed by Union Minister Piyush Goyal, who stated that nothing had been finalized at the time.
The government requested expressions of interest for the privatization of Air India in December 2020.
The Tatas and Ajay Singh were the only bidders to make it to the final stages of the race, which included four bidders.
Why Air India failed?
According to the Air India EoI published by DIPAM in January last year, the buyer would be needed to absorb 23,286.5 crores of the airline’s total debt of 60,074 crores as of March 31, 2019.
The privatization of Air India has been the most contentious of all the privatizations. Modi, the most reforming prime leader since PV Narasimha Rao, took seven years to carry it out, demonstrating how deeply ingrained this notion and the ecosystem that sprang up around it are. Modi now needs to go forward with the privatization of other PSEs, starting with refiner BPCL and insurer LIC, since that this roadblock has been cleared and taxpayers’ money will no longer be wasted funding the indulgences of Air India staff. But they are just the beginning. Indian Oil and HPCL, as well as telecom white elephants MTNL and BSNL and a slew of banks, are all waiting in the wings.
About the Tata Group
The Tata group, which was founded by Jamsetji Tata in 1868 and is headquartered in India, is a multinational conglomerate with 30 enterprises spread over ten industries. With a vision to ‘enhance the quality of life of the communities we serve internationally through long-term stakeholder value generation based on Leadership with Trust,’ the company operates in more than 100 countries across six continents.
Tata Sons is the Tata Group’s primary investment holding firm and promoter. Philanthropic trusts own 66% of Tata Sons’ equity share capital, which is used to fund education, health, livelihood generation, and art and culture.
The combined revenue of Tata enterprises in 2020-21 was $103 billion (INR 7.7 trillion). Over 800,000 individuals are employed by these companies. Each Tata firm or enterprise functions independently, with its board of directors guiding and supervising it. As of March 31, 2021, there were 29 publicly traded Tata companies with a combined market capitalization of $242 billion (INR 17.8 trillion). Tata Consultancy Services, Tata Motors, Tata Steel, Tata Chemicals, Tata Consumer Products, Titan, Tata Capital, Tata Power, Tata Advanced Systems, Indian Hotels, and Tata Communications are some of the companies that make up the Tata Group.
The way ahead
Air India gives Tata Group a third airline brand to add to its portfolio, given that the company already owns a majority stake in AirAsia India and a joint venture with Singapore Airlines Ltd called Vistara.
Air India, which hasn’t made a profit since merging with Indian Airlines in 2007, has coveted landing and parking slots at London’s Heathrow airport, which Vistara might use to attract business passengers with direct flights to Europe.