Tata Sons is set to formally take over debt-laden Air India as soon as Thursday, according to a person familiar with the matter, ending years of failed attempts to sell the money-losing airline that has been kept afloat with billions of dollars of taxpayer money.
The successful conclusion of the deal, India’s first major privatisation in nearly two decades, is a big victory for Prime Minister Narendra Modi, who has vowed to steer the state away from running businesses as his administration tries to plug a budget deficit. The move also marks a homecoming for Air India, which was originally launched in 1932 by Tata group’s former chairman J.R.D. Tata as the nation’s first carrier, flying mail between Karachi in then-undivided British-ruled India and Bombay.
Reviving Air India - whose market share more than halved to less than 10 per cent last year - will be a daunting task for the biggest conglomerate in India, which already runs two other unprofitable carriers. While Air India’s regional arm, Alliance Air, is not a part of the deal, the group is also gaining control of low-cost, short-haul international carrier Air India Express and an equal stake in a ground handling company with SATS Ltd.
Representatives for Air India and Tata Sons declined to comment. Spokesmen for India’s aviation and finance ministries didn’t immediately respond to requests for comments.
Tata Sons has yet to spell out its plans for Air India, which loses Rs200 million ($2.7 million) every day. Potential options include merging the flag carrier with one of its other airlines - Vistara venture with Singapore Airlines Ltd and AirAsia India Ltd with AirAsia Bhd - or keeping it independent. The terms of the deal prevent the new owner from firing any employee for at least a year.
The group was selected as the winning bidder in an auction in October, in which it bid Rs180 billion as an enterprise value for Air India, including taking on Rs153 billion of the airline’s debt. Air India also comes with a highly unionised workforce with a history of disrupting schedules for demands, and an aging and mixed fleet of more than 150 aircraft, potentially complicating a revival.