The Maharaja is on sale. Wanna buy it? Decoding Air India

The Maharaja (Air India) is on sale after the NDA government has made its decision for the same. The loss making airline is expecting a turnaround through this deal. The 85 year old airline in its regular iterative form has reached a situation with Rs.50000 crore debts and long history of accumulated losses is facing the real test: – Who is going to bail out Air India when the principal owner has decided a disinvestment in it? This post will have its way through the long history of Air India and its prospects as an asset to its new owner.

 

Namaste Air India Mein Aapka Swagat Hain

 

JRD Tata, a visionary who arguably fulfilled his dream of launching the world’s most sought after airline in 1930 as a mail carrier which transported letters which reached India (at Karachi) from Europe to the respective points of delivery across Indian cities like Mumbai, Chennai and Delhi became an international carrier by adding destinations like Colombo and some African cities before Indian Independence.

 

One of the few surviving airlines which witnessed the change from single-engine aircraft to the present jet type engine (one of the first airlines in India to receive the Boeing 707 in 1960) was once upon a time the most respected airlines for its customer service and CSR. People literally were unhappy with the reduction in time to international destinations due to the implementation of new aircrafts as it shortened the time it could receive the hospitality of the airline.

 

While we like the ads of Amul for its witty one liners, Air India was innovative for its ads too.

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Tokyo Poster — Courtesy: – ScoopWhoop

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Paris Poster — Courtesy: – Cupick.com

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Air India International — Courtesy: – Pinterest

The Indian Gamble of Air India

 

India needed a national carrier and purchased 49% stake in the public limited company rebranded as Air India in 1946. In a mass nationalization activity exercised by the government in 1953, Air India became a government entity with JRD Tata as its Chairman. The domestic operations of Air India with other regional carriers in the Independent nations were united into one entity to form Indian Airlines.

Air India was a successful airline grossing good profits on international routes to locations in Europe, North America and South East Asia to destinations like Bangkok, New York and Paris. The airline was running under the helm of a perfectionist JRD Tata who was the chairman till 1978, when Morarji Desai protested against serving of beer to in-flight passengers, which hurted the Honorary Air Commodore of India to quit.

 

While the airlines were doing well on international routes, the sun started setting for its domestic arm (Indian Airlines) after liberalization in 1991.  If necessary changes in the management and an infusion of a small capital in late 2000s, the airline wouldn’t have reached where it is today. While the international circuit was reaping profits for the airline, the domestic arm was rebranded to give a different look but in vain.

 

During this time, approximately Air India posted Rs.100 crore profit, which prompted the government of India to book 111 aeroplanes (for Rs.70000 crore) which later added pressure on its financials. Finally came the ugly merger, which made it a global behemoth but of debt. The losses continued to increase and no sign of revival despite regular infusion of public funds. The NDA government tried to get some relief for the airline by selling prime properties owned by Air India around the airport like Juhu Centaur and the Airport Centaur, which were a part of the Hotel Corporation of India Limited but fetched lower value to be sold to single bidders despite the demand. This was the first attempt towards privatization, which failed and therefore halted till the Modi government gave it a go in 2017.

 

What’s in Air India?

 

We must understand what Air India is worth of for its new owners

  • Alliance Air: – Known for its domestic connectivity to 34 Indian destinations with Delhi and Bangalore as major hubs, it is a worthy prospect for any International Airline who wants to start their business in India.
  • Air India Express: – Low cost competitor to Spicejet and Indigo has access to major cities in the Gulf and South East Asia from Tier II and Tier III Indian cities were among the few companies which posted a profit for Air India.
  • Hotel Corporation of India: – While Juhu Centaur and Airport Centaur were disinvested in 2000s, few prime hotels are still owned by Air India.
  • Air India SATS: – Transport division of Air India has its hubs at major airports in India.
  • Air India: – The domestic and International routes owned by the nationalized airline own prime slots for flying between two destinations (convenient for time-zones t origin and destination), hubs at various airports and parking space in busy International airports. While it also has a booking for prime parking space in Indian airports like Bengaluru, Delhi and Mumbai.
  • Other assets: – The Air India Building in Nariman Point, paintings worth crores in these offices and apartments for AI employees are located in prime localities which are a very big asset.

 

Who are the prospected buyers?

 

While it is still unclear whether the Government of India would sell off the entire unit in a single piece or break-it up for better returns and might even look for prospects to take care of the remaining unit with the money generated by the sale, but still considering all these issues, I have listed a few prospected buyers.

 

As a single unit

 

For this there is only one name, Tata. The Tata Group is very much attached to Air India and JRD Tata breaded it like his own child, it would surely be a homecoming for the $100 Billion salt-to-software conglomerate. They would likely purchase the entire unit (debt might come as a burden) and even retain the name Air India too. While Vistara is fighting for permission to fly on International routes, this would surely be a gift to its ambitions. Right hands have always ensured profit and Tatas are known for it. Air India’s image was only because of the shrewd hands of JRD Tata.

 

Break Up option

  • Air India Express: – Low-cost airline can be a prospect to Indian domestic airlines like Indigo (already expressed its desire) or Jet Airways (to reduce the gap of market share with Indigo as it leads the list with over 40% market share).
  • Alliance Air: – Due to its domestic connectivity, domestic likes of SpiceJet (they aren’t in a situation today, but might make a bid with newly infused capital), Indigo or International Airlines like Gulf Air and Qatar Air might make inroads with its purchase. India is the third largest air-flying community in the world after USA and China and it can be lucrative if done well.
  • Air India SATS: – A prospectus buys for an International Airline or a logistic giant who can use the existing resources for its profitability within a decade of the purchase.
  • Air India: – This seems to have the highest takers thanks to its access to premium routes, parking arrangements, lounge arrangements and hospitality, could be the best buy for any airline
  • Other assets might not be sold off by the Government of India due to its prime prominence.

 

Air India isn’t the first public airline to face such an issue. British Airways and Swiss Airlines have also been privatized in 1981 and 2008 respectively, with private airlines a major partner in the business. But what fears me of a break-up sale would be, what would happen once the funds are over and partners are not interested in the business anymore. This can be a possibility.

 

But the major question still remains is whether a break-up sale would be able to retain the brand image of Air India, which has credibility over the world for its CSR and hospitality and any company who buys it would not like the interference of politicians and bureaucrats in its business. While the Air India staff seems least bothered with the developing talks as they know it is not happening for the first time. They are working on new routes along the trans-Atlantic region for better connectivity.

 

Express your views in the comments box and let’s have a constructive discussion on the same. And yes, if you are interested in buying the Maharaja, just give a press statement for the same; you will become a prospected buyer for it.

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