Tatas need to be extremely careful over Air India says Deepak Talwar
A bid submitted by the Tata Sons, a consortium of employees and US-based fund Interups Inc, for cash-strapped Air India is not in the best interest of the conglomerate’s shareholders, a top market analyst has said.
Deepak Talwar, a seasoned aviation expert said that the salt-to-steel conglomerate will be draining a lot of its cash resources by submitting the expression of interest (EoI) on December 14, the deadline.
Talwar said that it is not yet known if the Tatas have roped in Singapore Airlines, its joint venture partner in Vistara, to make the bid. The conglomerate’s other aviation interest, AirAsia India, is a JV with the Kuala Lumpur-based AirAsia Berhad.
He said that Tata’s airline business is not in profit as yet. Vistara and AirAsia India have lost around $845 million combined through March this year. AirAsia has cheap prices while Vistara started in 2015, offers a personalized flying experience with little high rates.
“The group needs to be extremely careful before taking a final call on Air India. After all, the airline business is very competitive and capital intensive,” says Deepak Talwar.
“The combined losses of Vistara and AirAsia India are estimated to be in excess of Rs 2,400 crore. The airline’s total debt is at Rs 60,074 crore as of March 31, 2019, the buyer would be required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle. “This is a lot of cash, tough for the Tatas to bring to the table,” says Talwar.
The bidding conditions of Air India allows bids by employees. However, disinvestment rules say the company will not be able to partner with any private company. It has to partner with either a bank or a financial institution.
Interups Inc manages over 27,000 retirement accounts of NRIs in the US.
The government has substantially sweetened the sale terms for Air India. It has offered for sale its 100 percent stake in AI and AI Express — instead of 76% in the first attempt — and the entire 50 percent in ground handling joint venture AI-SATS.
This will not be the first attempt by the Tata Group to retain ownership of Air India, which was founded by the late Tata Sons Chairman JRD Tata, in 1932. It was initially called Tata Air Services and later, Tata Airlines. While the Government took ownership of the airline in 1953, the founder continued as its Chairman until 1977.
Years later in 2001, Ratan Tata teamed up with Singapore Airlines to bid for Air India, but that didn’t fructify. The whole divestment initiative was dropped.
Ratan Tata, no longer at the helm of Tata Sons, is said to be supportive of present incumbent N Chandrasekaran’s interest in Air India.
Talwar said that the group’s keenness for aviation business has not — exactly — translated into financial success. “Air Asia India and Vistara continue to struggle and if Tatas want Air India, it would mean the group will have to shell out more cash than ever before,” says Talwar.
Deepak Talwar said that the Tatas would have a tough time to scale up their aviation business because the only way to achieve success in the scaling business is to infuse more capital.
