“Maharaja” back to Tata: Air India’s Homecoming

“Maharaja” back to Tata: Air India’s Homecoming

Government-owned airline “Air India” will now be operated by India’s leading business house, Tata & Group. The Tata Group’s Special Purpose Vehicle Talace Pvt. Ltd. has won the auction for Air India, which was announced by the Department of Investment & Public Asset Management (DIPAM) secretary.

The government had fixed a reserve price of Rs 12,906 Crores. There were two parties in this auction in which Tata sons has bidden for the value of Rs 18,000 Crores. At the same time, the other competition was posed by the Consortium led by Ajay Singh, who owns the other airline company called Spicejet for the value of Rs 15,100 Crores.

If you are surprised by knowing the amount of bidding, you will be astonished by the debt that Air India owes. It is a staggering sum of Rs 61,652 Crores up to 31 August 2021. If we break down the bid price, out of Rs 18,000 Crores, Rs 15,300 Crores will be paid by the Tata’s while Rs 2,700 Crores will be paid to the government in cash. All these transactions are to be completed within the period of December 2021.

air india back to tata

What will Tata get in Return?

As per this deal, the 100% shares of Air India will now be owned by Tata instead of the government. Apart from the passenger service, the group will now also own the Cargo service, which is provided under the aegis of Air India Express. Now, since the operation of the airlines services will also require ground staff, the winners of the auction will also be owning 50% of the ground handling services known as Air India SATS Pvt. Ltd. Moreover, the company will now be owning 4,400 parking slots at domestic aviation services in India, which is the highest among all the aviation companies in the country. Similarly, it will hold access to 1,800 parking slots across the globe, which is also the highest among any airline in India. Now, as far as the operations are concerned, Tata will own a fleet of 127 aircraft’s which can be used to connect to as many as 102 destinations throughout the world.

What will Tata not have?

The government under this deal has not transferred the rights upon to the winning party is the non – core assets of Air India. The non – core assets worth Rs 14718 Crores which includes the land and buildings, will be transferred to Air India Holdings Pvt. Ltd. instead of Tata group.

Key Highlights of this Deal

  • It imposes a restriction on the winning party of the auction from further selling the shares for the period of 5 years.
  • Even after the lapse of the period of 5 years, the party cannot sell the entity to any foreign firm or individual. It can only be sold to an Indian firm or individual after the estoppel period.
  • The party cannot cause any change or alter the logo of Air India during this period of 5 years.
  • For the initial period of 12 months, none among 12,000 employees can be terminated by the Tata’s.
  • After this period of 1 year, the employees can be asked to opt for Voluntary Retirement Scheme (VRS).

History of Air India

Air India was not always under a financial burden like today. The present-day Air India was initially known as Tata Airlines when founded 89 years ago in 1932 by Jehangir Ratanji Dadabhoy Tata. The first commercial flight took off from Karachi to erstwhile Bombay via Ahmedabad in a single jet engine with 25 tons of mail. JRD Tata was so passionate about this airline that not only was it he who flew the first flight, but he was also the first person from contemporary British India to get a commercial pilot license as an Indian.

At that point in time, the British rule in India did not support such a novelty in India. The initial headquarters of this airline was made at a hut in Juhu. During the rainy season, the situation often worsened when there was water logging on the runway. This aviation company was started with an initial investment of Rs 2 lakhs then, resulting in Rs 60,000 profit in the first year.

In 1946, Tata Airlines was converted into a public company and renamed Air India Limited.

Post-Independence Scenario

After the country gained independence, Air India expanded its operations. In 1948, Air India International Limited was formed, and the company started operating on international routes. The government held 49% of stakes in this international venture, while the Tata group had 25% shares.

In 1953, the government decided to nationalize all the airlines in the country and formed two companies. Indian Airlines Corporation for domestic services, while Air India Corporation connects India with the rest of the world. JRD Tata was not at all happy with this step. He warned the government that operating an airline is different from operating railways and roadways. He was, however, appointed as the Chairman of Air India till 1978.

The Downfall Begins

As time passed, the words by JRD became a reality. The economic slowdown in the 80s and the decision to open the market in 1991 started affecting Air India as the company’s profits started to convert into a loss. Under the garb of foreign visits, ministers took their entire families on vacation, and Air India had to foot all of these bills. And not just ministers, their secretaries, and staff also traveled for free like this because Air India was footing all the bills.

The Era of Darkness

In 2004, the Ministry of Civil Aviation decided to purchase 111 aircraft’s worth Rs 50,000 Crores for a corporation with a total turnover of Rs 7,000 Crores. However, how will this money be recovered, how will the planes be used, and in what sector? There were no plans about all of this. Moreover, Air India & India Airlines were hastily merged to hide these losses under the carpet, and things went from bad to worse.

Why was the Government forced to sell this off?

After this hasty merger in 2007, Air India has not turned a profit in even a single year. CAG Report says that the contract with Boeing was one-sided as there were no negotiations regarding prices; there was no clause of how Boeing would compensate if there were a delay in delivering the aircraft’s.

The government has spent Rs 110,276 Crores to save this sinking ship since 2009-10. If there has not been this private participation, it was to be paid by our taxes.

We hope that this revolutionary airline in the Indian aviation sector will regain its lost glory with this deal.

This post was last updated on October 26th, 2021 at 08:29 pm

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