Air India formally becomes a part of Tata Group

The Indian government sold the debt-laden airline to Tata after concluding a $2.39bn deal in October for a 100% stake in the company

Air India planes in New Delhi. Tata Sons on Thursday regained the ownership of the country's debt-laden airline. AP

Air India formally became a part of the Tata Group on Thursday, three months after the country's oldest and largest conglomerate won the bid to take over the embattled airline.

The transaction covers three entities – Air India, budget operator Air India Express and AI SATS, a provider of ground- and cargo-handling services, group owner Tata Sons said.

“We are excited to have Air India back in the Tata Group and are committed to making this a world-class airline. I warmly welcome all the employees of Air India, to our group, and look forward to working together,” said Tata Sons chairman N Chandrasekaran.

Mr Chandrasekaran met India's Prime Minister Narendra Modi on Thursday before the official handover, and was joined by Ratan Tata, chairman Emeritus of Tata Sons, in expressing his gratitude to the government of India for the successful completion of this transaction.

The Indian government sold the debt-laden airline to Tata after concluding a 180-billion rupee ($2.39bn) deal in October for a 100 per cent stake in the company.

Tata is preparing a 100-day plan to improve Air India's operations and service standards, including upgrading its meals on offer, financial daily Economic Times reported.

“The Tata Group intends to implement the changes in phases, as turning this airline profitable is challenging not only financially but also operationally,” said Gaurav Garg, head of research at CapitalVia Global Research.

The airline has long been considered to be a drain on government finances, which could be better spent on areas including infrastructure and health care. Air India has not turned a profit since 2007, when it merged with Indian Airlines.

Tata chairman N Chandrasekaran, left, and Indian Prime Minister Narendra Modi in New Delhi. Photo: Tata Sons

Analysts believe that the privatisation of Air India will be positive for the airline and that it will significantly improve its performance.

The airline's cabin crew this week received information that they should be smartly-dressed and will be assessed by “grooming associates”, magazine India Today reported.

Air India has a large workforce of about 8,000 employees, which Tata will have to keep on for at least a year, under the terms of the deal.

“Radical changes such as fleet and cabin upgrades would take time,” Mr Garg said.

Tata already has a wealth of experience in the sector. The airline was started by the group's founder JRD Tata in 1932 under the name Tata Airlines, before it was nationalised about 20 years later.

Today, it has joint ventures in the form of airline Vistara, which it co-owns with Singapore Airlines, and AirAsia India.

Tata has interests spanning from energy to property, while brands under its ownership include Jaguar Land Rover.

However, the group is expected to face tough market conditions. Airlines in India have long struggled with profitability because of fierce competition from budget rivals and high taxes.

The Covid-19 pandemic has come as another blow to the entire aviation industry, given the disruption it has caused to travel.

“The challenge is sector dynamics: high capital intensity, operational costs and cut-throat competition,” said Richa Agarwal, a senior research analyst at Equitymaster.

“And on that front, things will be getting difficult for incumbents, with the privatisation of Air India, [the planned] launch of Akasa Air and Jet Airways resuming operations.”

“All in all, the consumers will benefit but for industry players, it is going to be a challenging flight," she said.

Meanwhile, Air India has coveted landing slots including London Heathrow, and after the pandemic, the number of people travelling by air from India is expected to surge over the coming years.

Despite this, the Indian government's previous attempt to sell Air India in 2018 failed to attract a single bidder.

After that, New Delhi reduced the amount of debt that the new owner would have to take on, and allowed potential buyers to full ownership of the airline, which helped to attract more interest and resulted in its long-awaited privatisation.