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Tata begins overhaul of Air India after Modi hands over state carrier

After eight years of late salary payments and months of coronavirus pandemic pay cuts, Air India pilot Ritesh is daring to hope that he will finally be paid on time once India’s powerful conglomerate Tata Sons takes control of the airline.

“It’s been years since we have seen timely payment,” said Ritesh, a second-generation Air India pilot who asked to use a pseudonym. “We are hoping that when the Tatas take over, things will be streamlined.”

Ritesh is one of Air India’s 13,500 workers now employed by Tata Sons after New Delhi handed over the airline in January. The deal fulfilled longtime goals of both Tata chair emeritus Ratan Tata and India’s Prime Minister Narendra Modi.

India had tried and failed to privatise Air India for two decades, while Tata wanted to reclaim the airline his ancestor J R D Tata launched in 1932 before the Nehru government nationalised it in 1953.

Now, the hard work to reform an airline bleeding $2.4mn a day begins. Air India is running on a fleet of ageing Airbus and Boeing planes, the company culture is derided as bureaucratic and it has been dragged into legal battles around the world.

“Air India seems a bit like a black hole, an endless drain on resources,” said Coomi Kapoor, author of The Tatas, Freddie Mercury & Other Bawas: An Intimate History of the Parsees.

Shri N Chandrasekaran, the Chairman of Tata Sons called on PM @narendramodi. @TataCompanies pic.twitter.com/7yP8is5ehw

— PMO India (@PMOIndia) January 27, 2022

The Tatas have conceded that turning round the carrier will be difficult. “Admittedly it will take considerable effort to rebuild Air India,” Ratan Tata wrote on Twitter after the conglomerate’s bid was accepted in October.

From the spectacular collapse of Kingfisher Airlines 10 years ago to the grounding of Jet Airways in 2019, India’s fast-growing aviation sector has been defined by booms and busts.

But for all its problems, taking over Air India makes strategic sense for the conglomerate, said analysts. The deal is set to give Tata approximately 23 per cent of the market share in India, consolidating its presence in a fiercely competitive field with rock-bottom fares.

“Tata-owned Air India will require three to five years for a structural turnround,” said Kapil Kaul, chief executive of Capa India, an aviation advisory and research group. “The first 12 to 18 months are critical to stabilise Air India and institutionalise strategic changes.”

The conglomerate is taking on less risk than it appears. Tata’s bid put debt-laden Air India at an enterprise value of $2.4bn. A government holding company retained almost $2bn worth of Air India’s land and buildings, as well as three-quarters of its enormous $8.2bn debt pile, according to local press reports. That relieves Tata of paying most of the interest on Air India’s debt.

Tata only had to front $375mn in cash, said Neha Singh, a lawyer specialising in aviation who advised on the Air India government disinvestment. The conglomerate also had the benefit of taking out low interest loans from the state-owned banks backing Air India.

Tata was able to secure loans easily, said Singh, adding: “It appears they have lender confidence and should be able to borrow at a very competitive rate from state-owned banks.”

Ratan Tata has said he wanted to bring Air India back under the conglomerate’s control © Kiyoshi Ota/Bloomberg

Air India adds capacity to Tata’s 51 per cent stake in full-service airline Vistara and its 84 per cent stake in budget carrier AirAsia. All three are unprofitable.

Tata can grow using Air India’s 900 valuable landing slots at airports around the world and 6,200 slots in India, said Jitendra Bhargava, a former Air India executive director. “Let’s say the Tatas had not taken over Air India. How long will it take for Vistara to grow to such scale [organically]? To take slots at Heathrow airport is not easy.”

Merging Tata’s airlines with Air India is the next step, said experts. “It seems obvious that they would consider consolidating some of their brands to gain scale efficiencies,” said Adrian Schofield, an editor for New York-based Aviation Week.

“The most likely way to do that would be to combine the low-cost carriers of Air India Express owned by Air India and AirAsia India.”

Along with heavy investments in aircraft upgrades, the turnround will have to start with the airline’s culture, according to Bhargava.

“The government culture is unproductive and inefficient,” said Bhargava. “The Tatas will have to [first] invest money in re-engineering work practices.”

Some reforms are under way. As part of the handover, Tata agreed to keep on all Air India staff, but only for a year, which Bhargava said should provide an incentive to employees to perform.

Employees who live in Air India accommodation, typical for government workers, have been told to move out. Unions continue to threaten industrial action over pay.

Many hope Tata can revive the airline’s lost glamour. One former cabin crew member, who worked at the airline when it was run by J R D Tata, said it was his personal touch that set Air India apart.

“The reason the airline was so good was Mr Tata. People knew he was very particular about everything, he was the one who set standards,” she said, remembering that he personally selected the French wine served on board.

Ritesh, the pilot, says he would also welcome the Tata touch to restore the airline to its former glory. Even he admits: “Right now, we’re not very happy with the in-flight service.”

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