The Tata Group will take over state-owned Air India, marking a successful end to the government’s bid to privatise the national carrier after having failed to sell a majority stake in it in 2018.
Tata will pay Rs 18,000 crore to acquire Air India from the government — of the total money 15% would go to the government and the rest will go in clearing debt.
“Talace Pvt Ltd won the bid to own 100% of government stake in Air India,” Tuhin Kant Pandey, secretary, Department of Investment and Public Asset Management (DIPAM) announced today.
Welcome back, Air India 🛬🏠 https://t.co/euIREDIzkV— Ratan N. Tata (@RNTata2000) 1633691024000
“Bidders have agreed to all terms and conditions. Five bidder were disqualified as they did not meet the criterion,” the Dipam Secy said. “The process was carried out in a transparent manner with due regard to confidentiality of bidders.
This follows the group of ministers known as the Air India Specific Alternative Mechanism approving the bid winner. The panel was headed by home minister Amit Shah and included finance minister Nirmala Sitharaman, commerce minister Piyush Goyal and aviation minister Jyotiraditya Scindia. The long-awaited Air India divestment is being heralded as one of the biggest reforms by the Narendra Modi government. The earlier attempt in 2018 didn’t find any takers.
The reserve price was fixed at Rs 12,906 crore, and the winning bidder will take Rs 15,300 crore debt. It will also retain all AI employees for one year, and can offer VRS in the 2nd year, as per the Aviation Ministry.
A letter of intent will be issued regarding the same.
The government had received two bids for the airline–one from the Tata Group and the other from SpiceJet chairman Ajay Singh in his personal capacity.
The deal includes a 100% stake in Air India and low-fare unit Air India Express as well as a 50% holding in ground-handling company AISATS.
The government plans to hand over the airline to the buyer in another four months with the process starting 15 days after the announcement of the result.
Bids for the carrier were sought at an enterprise value. Under the formula, a minimum 15% was to go to the government and the rest will be used to reduce existing debt.
Air India’s total debt stands at Rs 43,000 crore, an increase of about Rs 20,000 crore in the past two years due to the effects of Covid on the industry. The government plans to absorb this portion and transfer the airline to the new owners with a debt of Rs 23,000 crore–a large part of it will be retired with the bid money.
Analysts say that Air India would bring in benefits for the Tatas, if the group plays it right.
“Air India has come full circle, back into the arms of its founders, the Tatas. Bold, brave move but will it be bountiful for the new owners? If they play it right, take advantage of the vacuum presented by a post-Covid landscape, the can carve a new future for the national airline,” said Shukor Yusof, founder of Endau Analytics, a Kuala Lumpur based consultant.
“India’s got a lot going for aviation – a rising middle class, likely growth in travel & tourism domestic & from abroad & it sits between the Gulf & Southeast Asia, an area of vast potential for air travel. Finally it fits nicely into (PM) Modi’s privatisation plans. Of course there will be lots of challenges, including riding fuel costs, intense competition from LCCs & if Tata has the staying power to manage heavy losses during the initial takeoff period.”