App sale

After almost seven decades, Tatas regains control of Air India. But the sale does little to replenish government coffers

Almost seven decades after ceding control of the airline, the Tata Group took over Air India on Thursday. Last year, the group became the winning bidder for the airline, with a bid of Rs 18,000 crore. With this acquisition, Tatas will acquire a 100% stake in Air India, Air India Express and a 50% stake in ground handling company AI-SATS. This sale marks the first major outright privatization of a public sector entity in recent years. Although there have been criticisms of the pace and modalities of the government’s privatization program, the symbolism of this sale is hard to ignore.

The Tatas will now face the daunting task of turning the airline around. It will be difficult, especially at a time when the aviation industry is grappling with the fallout from the pandemic. It will also have to deal with a plethora of legacy issues, ranging from an aging fleet to human resources. According to the tender conditions, the Tatas will have to retain all employees for a period of one year. The group is also facing claims over Air India’s international assets by Devas Multimedia and its investors who are trying to enforce its arbitration awards. Apparently, Air India is seeking to end the case on the grounds that the change in ownership precludes any claims for recovery of the arbitral awards. Then there is the question of the group’s other competing airlines – Vistara and AirAsia India – to contend with. It is possible that the Tatas will at some point consider integrating their aeronautical companies under a single entity.

While this is an important step in itself, it does little to shore up the proceeds of government divestment. Of the winning bid of Rs 18,000 crore, only Rs 2,700 crore is to be paid to the government, while the group will keep the balance, Rs 15,300 crore, as debt. DIPAM data shows government divestment proceeds remain well below target – against a target of Rs 1.75 lakh crore, collections so far were just Rs 9,330 crore. For its part, the government hopes that LIC’s IPO will peak by the end of March, although given the intricacies of such a transaction, it is unclear whether it can be completed by the end of March. the. Similarly, the privatization process of BPCL as well as that of public sector banks should also spill over into next year.

This editorial first appeared in the print edition of January 29, 2022 under the title “Flying home”.