Way back in 1953, the Jawaharlal Nehru government took over Tata Airlines and nationalized it to form ‘Air India’. Adding further insult to injury, the Morarji Desai government removed JRD Tata (who had served Air India for a quarter-century without remuneration of a single rupee) — from the boards of Air India and Indian Airlines in 1978.
On February 27, 1978, Daily Telegraph, London carried the headline “Unpaid Air India Chief Is Sacked by Desai”.
“Sir, we have heard about your exit on the radio. How do you feel about it?” someone asked JRD who replied, “I feel as you would feel if your favourite child was taken away.”
Indira Gandhi, the then leader of Opposition, wrote to JRD, saying: “You were not merely the chairman but the founder and nurturer who felt deep personal concern. It was this and the meticulous care that you gave to the smallest detail, including the decor and the saris of the hostesses, which raised Air India to the international level and indeed to the top of the list.”
Though JRD didn’t say so – and in as many words – but over the past many years it has increasingly become fairly obvious that the government – both the political masters and their hand-picked bureaucrats have no idea how to manage airlines in a cost-effective manner and have made a mess of the civil aviation sector.
Take-off and vantage position
Under JRD’s leadership, Air India was a force to reckon with, in Asia and a source of inspiration for many airlines like Cathay Pacific and Thai Airways which were beginning to spread their wings in the 1970s. Not to be left behind, Air India was the first Asian airline to induct a Boeing 707 jet aircraft named Gauri Shankar in its fleet in February 1960.
In 1955, China did not have the required long-distance aircraft. So Indian Airlines was chartered to fly the Chinese Prime Minister Zhou Enlai from Hong Kong to Bandung, Indonesia to attend the first conference of the Non-Aligned Movement. During those days India had the best training schools. A widely held belief in the industry in those days was that Air India had the best of trained, motivated and well-behaved pilots, cabin crew, technicians and ground staff. So other airlines like Singapore Airlines, Malaysian Airlines, and Nigerian Airlines relied upon Air India for training their staff, providing experienced personnel on deputation or fulfilling their logistical needs. Singapore Airlines – an upcoming airline in those days — in fact signed an agreement for cabin crew, pilots, ground staff and engineers for two years deputation to meet its requirement. Some of the best pilots and engineers in– Emirates, Etihad, Qatar Airways, IndiGo or Jet Airways were from Air India.
On 21 February 1960, Air India introduced the first Boeing 707-420 in its fleet and thus became the first Asian airline to enter the Jet Age.
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The downfall
Air India’s downfall started sliding down in the late 1970s when political appointments started in a big way. The management and employees, both were responsible for the downfall. Corruption, the excessive prices paid for aircraft and overstaffed management led to Air India’s downfall. Air India started being run like a personal fiefdom and flight safety standards came tumbling down.
Current Status – from bad to worse
Over the past 14 years, Air India has not made any profit and incurred a loss of Rs 7,000 crores in FY21. The airline had piled up debt worth over Rs 61,500 crores as of August 31, 2021, and the government had to send Rs 20 crore per day – just to keep the airline afloat! To square off and cut down the losses government India put Air India up for sale, but couldn’t find a buyer.
Over the last decade, more than Rs 1.10 lakh crore was infused by way of cash support and loan guarantees to keep the loss-making airline afloat. A Financial Restructuring Plan (FRP) for Air India was approved by the previous UPA regime in 2012 but it did not work out, and Air India continued to suffer heavy losses.
According to the Directorate General of Civil Aviation (DGCA), Air India had the third-highest list of passenger complaints and the lowest number of flights on time.
SOS: Government v/s Private Ownership?
Nearly seven decades after it was nationalized – the Government realized its mistake and decided to sell off its stake.
On October 25, the government of India signed an agreement handing over the cash guzzling Air India to Tata Sons. As a part of the whopping ₹18,000 crore deal, Tata’s will pay ₹2,700 crore cash and pay off the loss-making the airline’s debt worth ₹15,300 crores.
In doing so, Tatas beat the Rs 15,100-crore offer made by a consortium led by SpiceJet promoter Ajay Singh to get a 100 per cent stake in the loss-making carrier that operates a fleet of Airbus and Boeing aircraft flying to 102 domestic and international destinations.
In a nutshell, this deal inked ensured that the airline company was handed back to its original owners-the Tata Group! It is worth mentioning that Air India (formally known as Tata Airlines) was founded as a private entity in 1932. The government of India bought a majority stake in it and renamed it Air India.
What does Tata Group get?
Besides a 100% stake in Air India, it’s subsidiary Air India Express, and a 50% holding in ground-handling company AISATS, the Tatas would get 141 Air India aircraft – 99 owned and 42 are leased. The Tata Group will also get access to 4,400 domestic and 1,800 international landing and parking slots at domestic airports and 900 slots at airports overseas.
100-Day Revival Plan
The issue is not what Tata group is getting – but what it can offer in return. Can it efficiently manage the affairs of Air India and resurrect it as a profit-making – privately held enterprise?
The Tata Group is understood to be working on a 100-day plan to improve the service delivery and image of Air India. The idea is to revamp the airline back to its pristine glory by assuring on-time flight schedules, and customer satisfaction. Though these are some issues that cannot be completed in a 100-day duration the least that Tatas wish to ensure is its status as the most punctual airline!
A Glimpse into the Future!
The Tata Group already had an equity partnership in Vistara (51% stake) and AirAsia (84% stake). Now after taking-over Air India, the Tata Group has emerged as a dominant player in three airlines in its kitty – posing a direct threat to Indigo and Spicejet the current market leaders in the civil aviation segment.
This is sure to make life difficult for Akasa Airlines backed by Rakesh Jhunjhunwala and Jet Airways, which plans to fly high in 2022.
The biggest hurdle for the Tatas is how to how to assimilate four different people, cultures and aircraft types — in Air India, Air India Express, Vistara and AirAsia.
This is not going to be an easy cake-walk as Air India hasn’t made any profit since 2007 when it was merged with Indian Airlines. The Tata group is also known to own a stake in two joint ventures – Singapore Airlines Ltd. and AirAsia Group Bhd. But both these do not make much profit and contribute a tiny portion to the group’s overall revenue.
What this boils down to — is the fact that the two big players — Air India and Indigo — will dominate the market while the smaller airlines will struggle to survive and may sink fast.
Already the Madras High Court has allowed a winding-up petition filed by Credit Suisse against SpiceJet Airlines which failed to pay up $24.01 million towards maintenance services while GoFirst’s IPO failed to take off.
The big question obviously now is –will Tata group merge all its aviation businesses into one brand, and first sort out the issues with the Air India employees union before shedding off / trimming the excess staff after the mandatory waiting period? This is something only time will tell.
On paper, airline mergers seem simple but invariably are accompanied by a number of ‘ifs and buts’ and can prove to be an extremely daunting task.
Another big question obviously is – who will bell the cat or in other words lead Air India in its journey ahead.
According to sources, the possible candidates include Fred Reid, a former Virgin America and AirBnb executive who might be asked to take over as CEO while Nipun Aggarwal, an ex U.S.-based banker-turned Tata executive may be appointed CFO. As per the agreement, Tata Sons have to retain all old employees, at least for a year. But it does not prevent them from hiring new ones; hence they may well hire a new set of employees to run the flag carrier – and do things differently.
Tata has established a new subsidiary to handle the Air India deal, known as Talace. Talace is currently in talks with banks to secure a one-year loan to the tune of ₹23,000 crores
While this loan is for a considerable amount, Tata will need billions of rupees over the next decade to fund Air India and make it run efficiently. This will include fleet modernization, refurbishment of existing planes, and an increase in the long-haul route map. However, this process will take at least a few more months or years to fructify.
Can Tata’s turn Air India around?
Taking over and transforming companies has been a hallmark of the Tatas’ right from the days when Jamsetji Tata started a trading company.
“Our grandmother taught us to retain dignity at all costs, a value that’s stayed with me until today.” – Ratan Tata
