While the debt-laden carrier returns to its original owners, the Tatas are now tasked with charting the airline’s flight to glory.
Ending decades of attempts to privatise the debt-laden, Air India returned home to the Tata Sons, which had originally launched India’s flag carrier with a namesake branding in 1932. The euphoria around the $2.35 billion deal led to social media getting filled with throwback photos of JRD Tata, the founder of the airline.
Ratan Tata, the company’s chairman emeritus, tweeted “Welcome back, Air India”. The sale of Air India was in the offing for a long time as the government owned dominance of the airlines came under serious threat with other aggressively competitive private players.
For the Tatas, this was history coming full circle. It wasn’t just another of their businesses, but their baby which was snatched by the government of India. During the wave of nationalisation, several airline companies were merged into one and taken over by Jawaharlal Nehru’s government.
JRD once asked the then Minister of Communications, Jagjivan Ram, “Do you think it is easy to run an airline just the way you run other departments? You will see for yourself.” Ram responded, “It may be a government department, but we want your help to run it.”
This arrangement was like rubbing salt into Tata’s wounds. Not only did the government take over his company, but they asked him to run it too.
Return to glory
As part of the deal, the Tatas purchased the airline only after the government agreed to absorb 80 percent of the debt, which allowed them to bring about a turnaround for the carrier, as they did with other extremely successful brands such as Telco and Tisco.
The Tatas are already excelling in the airline sector, with Vistara which is their joint venture with Singapore Airlines. It was even conferred recently as the best carrier in India at the 2021 World Airlines Awards.
“They will ensure its revival and make it into one of the best airline services in the world,” Jitender Bhargava, former Executive Director of Air India and author of The Descent of Air India, told Quartz.
“When Air India was under the Tata Group prior to the 1970s, it was known for its quality and even now, Vistara (the firm which Tata has invested in) is also recognised for its premium quality.”
However, it isn't a bed of roses for the Tatas, who are already struggling with Visatara and AirAsia. Some analysts however are more forgiving about the amount of time it takes to make profits in the airline sector.
“When it comes to aviation, it takes around 10 years to reach a break-even point. It’s been around six years since the Tata Group invested in AirAsia and Vistara,” Mark Martin, Founder and CEO of the aviation consulting firm, Martin Consulting, told Quartz.
Since the airline's losses and debt was observed to be increasing over the years, the Indian government planned to privatise it during its 2017-18 budget session. Following its merger with Indian Airlines in 2007, the company never really made any profit.
Image credit: Gopilot, Pixabay
While cost cutting measures diminished its quality of service and hurt ticket sales, fierce competition from the private sector shrunk its customer base considerably. As of the financial year ending March 31, 2021, the airline accumulated a net loss of Rs 10,000 crore.
Analysts who tend to keep an eye on the airline sector are quick to point out that bureaucracy, mismanagement and red tapism is affected Air India. It is also important to note that the rise in aviation turbine fuel and depreciation of the rupee further wounded the airline. At one point, fuel suppliers threatened to cut off supply in 2019 over the non-payment of bills.
When will it be profitable?
Bhargava, said as part of a commentary, “The question of how rapidly the Tatas can make the airline profitable needs to be viewed in the context of the impact of the pandemic, other domestic factors such as price sensitivity of passengers and high operational costs".
He opined that monetising customer-interfacing-objects is what will add to the revenues. Following the initial phase of cost reduction and revenue enhancements, the Tatas are likely to look at fleet expansion.
It is quite certain that the Tatas will flex all their muscles to get the airline roaring. This includes using expertise to advance digital transformation of the company by tapping into the capabilities of its very own Tata Consultancy Services (TCS).
"Turning around Air India and making it profitable once again, will be a daunting but achievable task. It will also be a long-haul flight for the Tatas. One should make no mistake about it by being over optimistic because the ground realities of the Indian market simply cannot be wished away,” Bhargava added.
Edited by Roshni Shroff
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