India’s largest conglomerate the Tata group has been sold the country’s loss making national carrier Air India in a deal worth almost $2.4bn. Tata was the highest bidder for the airline that was put up for sale by the Indian government.
Originally, the airline was founded by The Tata group in 1932 and was later taken over by the government in 1953.
Air India had amassed total losses of $9.5bn which promoted the government, its owner, to put it up for sale.
After initially failing to attract buyers because of the massive debt, the government had in move recently attempted the make the sale more attractive for buyers by changing the terms of the debt less onerous.
The extent of the debt of Air India that the Tata group would be also acquiring with the airline according to the new terms of the deal is yet unclear.
A picture of the founder and former chairman of Tata, JRD Tata, on the tarmac with an Air India plane in the background was tweeted by Tata Sons Chairman Emeritus Ratan Tata, minutes after the acquisition.
The Indian government under Prime Minister Narendra Modi had been trying to sell off the entire of the state stake in the airline and the acquisition is also expected to boost a wider divestment initiative of the government.
One of the attractiveness of the airline is its numerous assets that include valuable slots at London’s Heathrow airport, a fleet of more than 130 planes and thousands of trained pilots and crew.
Vistara, a full service carrier with Singapore Airlines as the partner, and AirAsia India, a budget airline in partnership with Malaysia AirAsiaBhd, are already owned and run by Tata Sons.
Since its merger with the state-owned domestic operator Indian Airlines in 2007, the national carrier had been making large losses and the functioning of the airline was funded by taxpayers’ money. Daily losses of nearly 200m rupees ($2.6m) were being incurred by the airline for its operations, the government said.
High prices of aviation fuel, high usage charges at airports, severe rivalry from low-cost carriers, weakening of the rupee, as well as large burden of interest because of the airline’s performance have been put up over the years as the reasons of its poor financial performance.
Air India “suffered for its inconsistent service standards, low aircraft utilisation, dismal on-time performance, antiquated productivity norms, lack of revenue generation skills and unsatisfactory public perception”, according to Jitender Bhargava, a former executive director of the airline.
The first attempt to sell of a 40 per cent stake in the airline was made by a previous BJP-led government in 2001.
Several foreign airlines had initially expressed interest to buy Air India, including Lufthansa, British Airways, and Singapore Airlines, but later withdrew their efforts after the government required them to partner with an Indian company to make a bid.
(Adapted from BBC.com)