The Competition Commission of India has approved Tata’s acquisition of Air India, AI Express, and AI-SATS Airport Services. The process began a couple of months ago with the Tatas winning the bid and is now very close to being completed. The Tata Group has until January 23, 2022, to take complete control of the airline and start flying it as a private entity under their brand.
The Competition Commission of India (CCI) has approved Tata’s acquisition of Air India. Photo: Getty Images
Following the signing of the sale-purchase agreement on October 25, the process for getting clearances from regulatory agencies was underway. Now that the CCI has given the go-ahead, others such as the Directorate General of Civil Aviation (DGCA), lenders, and third-party vendors will likely give a green signal pretty soon.
Once all the requirements are met, and the previous and new owners are happy with the balance sheet, the Tatas will pay ₹2,700 crores ($355mn) upfront to the government, as decided, and take ownership of the carrier.
Before the acquisition, the Tatas would most probably want to settle the ongoing wage issues of AI’s current employees. One of the first things the new owners would do is ensure that AI operations are kept running and even improved.
The Tatas have established a new subsidiary to handle the Air India deal, known as Talace, which is in talks with banks to secure a one-year loan to the tune of ₹23,000 crores ($3.02bn). While most of it will go towards purchasing Air India, some of it will be used for the carrier’s operational costs.
The Tatas are expected to bring about many changes within the airline, including management and fleet optimization. Photo: Getty Images
Changes in the management team and working culture of the airline are all on the cards, and the Tatas have come up with a 100-day plan to improve the airline’s services, such as on-time performances, addressing customer grievances, and just raising the overall basic service standards. While it’s impossible to dust off years of malpractices in just 100 days, the Tatas will hope to bring about some improvement and set the tone for things to come.
Then there’s the big question about the merger. While there are plans to merge AirAsia India and AI Express, there’s been no official announcement about Vistara and Air India. Will the new owners eventually combine all airlines under the Tata umbrella to form one carrier or operate two separate entities – one full service (AI and Vistara) and its low-cost arm (AI Express and AirAsia India)? At the moment, the second option seems more plausible.
Fleet and network
Another key issue, and a pressing one, facing the Tatas is fleet and network optimization. They’ll have to take a call about Air India’s grounded planes and how to turn around the poor conditions of the interiors of many of its aircraft.
A little over 80% of AI’s fleet is functional. This means that many planes are sitting on the ground, gathering dust and not bringing in any money. Refurbishment alone would cost millions, with up to $300,000 per widebody aircraft. Many of its planes from the A320 family are also awaiting new engines, the costs of which are expected to run into hundreds of millions.
The Tatas may not be ready to foot such expensive bills to get all the old planes flying again. Instead, we could see fresh aircraft orders, both from Airbus and Boeing.
Many of AI’s planes need new engines and maintenance, something that will cost the Tata Group millions. Photo: Getty Images
In the long run, a private Air India will have to up its game in network expansion, not just in India but also internationally. There’s a huge demand for direct non-stop flights after the pandemic, but AI has to add more destinations in the future to compete with foreign carriers.
AI currently flies to five airports in the US and eight in Europe; Emirates flies to 15 in the US and more than 40 in Europe. While the two airlines have very different structures, AI will have to think about expanding its fleet and network eventually, which will again cost billions to the Tatas in long-term investments.
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