In today’s special story, we revisit Air India’s journey through the years and see what the sale means for the company and the Indian government.


The Origins

Our story begins in the year 1932 — in the city of Karachi. This was at a time when Karachi was still part of undivided India. On 15th October 1932, a 28-year old Jehangir Ratanji Dadabhoy (JRD) Tata climbed aboard a single-engine plane and took to the skies. His destination was Chennai (then Madras) and he intended to reach his destination after a brief stop at Mumbai (then Bombay). With him, he also carried a small pouch of airmail. It read — ‘First Flight Madras-Karachi Airmail Service.’

And thus...Tata Air Mail had arrived.

Before you knew it, the airlines went from ferrying mail to ferrying passengers. Within six years, the company owned 15 planes. And it was renamed, Tata Airlines. By 1946, it carried one in every three passengers in India and owned 50% of the country’s fleet. The same year, it became a public company and adopted the name we’re all familiar with — Air India.

And as you can probably imagine, a private airline ruling the skies was quite something. Even by global standards.

“Scarcely anywhere in the world was there an air service operating without support from the government. It could only be done by throwing on the operator the financial risk. Tata Sons were prepared to take the risk,” Sir Frederick Tymms, the then chief of civil aviation told a newspaper in 1934.

The takeover

Shortly after independence, the Indian government whipped up a joint venture with the Tata Group. They formed Air India International. But by 1953, the aviation sector had become a bit of a mess. Multiple airlines were trying to grab a piece of the fledgling industry and losses were mounting. Only Air India remained profitable.

And then in a nationalisation spree, the Indian government took over the company for a sum of Rs 2.8 crores. It then merged a bunch of entities flying India’s domestic routes, including Air India’s domestic operations and rebranded it — Indian Airlines.

And Air India International? Well, it became just Air India.

Now, most people think that Air India went for a toss the moment the state acquired the assets. However, that isn’t true at all. For three decades until the mid-1980s, state-owned airlines in India made considerable sums of money for the government. This was a period of exceptional profitability for both Air India and Indian Airlines. The only problem however was that ticket prices were prohibitively high and regular folks simply couldn’t take to the skies. So in a bid to increase airline penetration in India, the government started letting private players participate in the commercial aviation segment. Once private players entered the market, more Indians took to the air than ever before and a slew of profitable private airlines emerged during the 90s.

It was during this competitive era that Air India’s prospects began going for a toss.

The fall

Air India lost market share in the post-liberalisation period of the 1990s. And losses mounted. Indian Airlines, the domestic carrier, suffered a similar fate. And by 2007, the government merged both entities.

Here’s what Shashank Shah, the author of The Tata Group: From Torchbearers to Trailblazers, wrote:

“Between 2007 and 2009, combined losses increased from ₹770 crores to ₹7,200 crores and borrowings rose from ₹6,550 crores to ₹15,241 crores. The merged company had over 30,000 employees i.e., 256 employees per plane, twice the global standard. Air India ended up spending almost one-fifth of its revenue on employee pay and benefits while other private airlines spent about one-tenth.

Even before the merger, the Civil Aviation Ministry had decided to purchase 111 new narrow and wide-body aircraft for a whopping ₹67,000 crores funding it via debt. As a result, between October 2012 and March 2013, the merged entity suffered an average loss of ₹400 crores every single month.”

Oh yes, it turned into a proper dumpster fire.

The comeback?

The government finally had enough of the beleaguered airline and it began its bid to wash its hands off Air India in 2017. And 4 years on, the journey has finally come a full circle. Tata Group has emerged with the winning bid and they're all set to take control of Air India.

So let’s look at the deal itself and figure out what Tata is putting at stake right now.

All in all, they’re shelling out about Rs 18,000 crores in enterprise value terms. You don't have to know too much about Enterprise value. But know this much—Tata isn't actually putting up all of this money. Instead, they’re taking up about 15,300 crores worth of debt from the beleaguered airline and they’re paying close to 2,700 crores in cash — which will ultimately go to the government.

In return, they’re getting a pretty decent deal. There’s the presence that Air India has built over the years — the brand equity and all the airport slots. They will now control 4,400 domestic and 1,800 international landing and parking slots at domestic airports. As well as 900 slots at overseas airports.

And since the Tata Group already operates 2 other airlines — Vistara, a joint venture (JV) with Singapore Airlines, and Air Asia India, a JV with AirAsia Investment Ltd — the new acquisition should bolster their aviation ambitions and give them a commanding market share.

And if you’re thinking that the government can simply walk away here after offloading the company, well, that’s not entirely true.

As of 31st August, the airline was carrying a debt of ~Rs 61,500 crores. So the government will still have to service about Rs 46,000 crores worth of debt — not an insignificant sum by any account.

Also according to the aviation ministry, the fixed assets — land, buildings, planes —worth more than $6 billion (over Rs 45,000 crore) won’t all be sold to Tata. The planes will go to them of course. But the land and building, worth approximately Rs 14,700 crores will stay with the government.

There’s also this massive collection of art — close to 40,000 pieces in total. But since we don’t know the value of these assets, we can leave that for now. The only other silver lining for the government perhaps is that they won’t have to worry about running the company and any ‘future’ debt the entity may see.

So yeah, Air India is finally going back to the Tata’s. But they’ll still have to be on their toes with the aviation competition heating up. You can expect to see a revived Jet Airways and the soon-to-be-launched Akasa Airlines in 2022. And as to how the airline’s fortunes may turn under Tata’s stewardship, we’ll just have to wait and watch. Until then…

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PS: Also, if are you wondering about the Maharajah reference in the headline? It’s the famous Air India mascot of a moustachioed, turbaned man. The mascot has been around since 1946.