The TLDR: Air India—our greatly beloved white elephant—is on sale again. And this time around, it actually has three suitors, including the Tata Group—which is also most likely to win its fair hand. Landing the aviation behemoth may or may not be fortuitous for a company that also owns two other cash-strapped airlines.

A history of thwarted love

The Tatas: The company’s relationship with Air India is like a grand love story spanning decades. 

• Back in 1932, founder JRD Tata started India’s first airline, Tata Airlines—which was nationalised in the 50s and renamed Air India. 
• Separated from its beloved, the Tatas tried to first start a new airline in 1994 in association with Singapore Airlines—but was shot down by the government.
• Then in 2000, it teamed up with Singapore Air again to bid for a stake in Air India. That didn’t work either thanks to political opposition and Jet Airways founder Naresh Goyal. 
• In the face of multiple rejections, the Tatas moved on—to first partner with Air Asia to launch its Indian arm in 2014. Then came Vistara—in partnership with Singapore Airlines—in 2015.
• We now have come full circle as the Tatas seek to be reunited with their long lost love, the bewhiskered portly Maharajah.

The government: OTOH has been doing its best to divorce the Maharajah since 2017 —and to little avail. 

• Last year, it generously offered 76% of the airline—and put on fancy roadshows across the globe—but (surprise, surprise) there were no takers. 
• For some inexplicable reason, no one wanted the government to own any part of their airline. Also, one tiny issue: Rs 600 billion in debt. 
• Since the Maharajah’s financial position—as the Civil Aviation Minister Hardeep Puri put it—was “very fragile,” in January, the government sweetened the pot. The new offer: Forget joint custody. Just take 100% of the damn airline. 
• But no one was willing to take on that massive debt. So the government reduced the amount passed on to the buyer to Rs 232.86 billion in October. And still found no takers.
• So here we are in December with an even sweeter deal on the table—which finally has sparked “multiple expressions of interest.” Hallelujah!

The new situation

The deal: is pretty much the same as the one offered in January except for one big tweak: Bidders can decide how much of the Maharajah’s Rs 582.55 billion debt they want to take on. 

The bidders: According to the Disinvestment Secretary—yes, that’s a real title—there have been multiple bids for the airline. But he declined to name any of them. Apart from the Tatas, there are either one or two other bids. 

What we know: A group of 219 Air India employees are among the bidders. They each have contributed a minimum of Rs 1 lakh. And they are vying to buy a 51% stake, while the remaining 49% will be held by an unnamed financial partner.

What we don’t know: is whether this unnamed partner is a US-based company called Interups Inc. According to Chairman Laxmi Prasad, his company has submitted its bid in conjunction with Air India employees—but the latter isn’t putting in any money:

“We are giving an open offer to employees of Air India to substantially own the airline… Our group will invest the entire monies required for the airline, with no capital requirement from employees to contribute into the acquisition effort.”

Indian Express appears to think the two represent the same bid. Bloomberg News isn’t so sure. Also: No one seems to know very much about Interups which describes itself as a “a publicly listed company engaged in the business of identifying and investing into business opportunities or transactions either directly or on behalf of its stakeholders, affiliates, associate concerns and clients.” Yeah, it’s that vague.

The Tatas’ dilemma

As with any dulha, the Maharaja has his vices and virtues. 

The upside: As former Air Deccan founder Captain Gopinath notes, despite the routine heckling, Air India has considerable assets:

“AI has a vast domestic and global network to key destinations, assured time slots and space in prized airports with airside access, hangars, engineering backbone, infrastructure, trained engineers and flight crew, bilateral rights, assurance of continued protection of those rights, huge aircraft orders with delivery timelines, and revenue of around Rs 25,000 crore, which can be doubled with better management in a short period. All these can ratchet up its valuation to about Rs 50,000 crore, comparable to rival carrier Indigo, by listing it after three to four years with the right restructuring, management and leadership.”

Also this: Tatas’ two other airlines—Air Asia and Vistara—already account for 13.2% of the market. Adding Air India to that kitty will raise the Tatas share to nearly 23%—making it the only real competitor to IndiGo which now owns 51% of the market. And Air India has one thing that IndiGo lacks: international routes, as one airline exec points out:

"There is no Jet Airways, at least not yet. IndiGo doesn't seem to be keen on the long haul and others are just experimenting. With Air India, and its slots, flying rights and offices, the Tatas will get to dominate international travel, from and to India.”

The downside: Air India failed for good reason. The staff is bloated: 13,000 permanent employees with a monthly wage bill of Rs 2.3 billion. And it is hemorrhaging money: It lost an average of Rs 280 million a day, in the first three months of this financial year. And its losses jumped to Rs 25.7 billion in the June quarter, up from Rs 7.85 billion a year earlier. 

Also, Tatas’ other airlines: are not doing well either. Vistara and AirAsia India have never made money—and have lost around $845 million combined through March this year. More importantly, Air Asia has already signalled its intention to cut back on its India operations—leaving open the possibility that the Tatas will have to buy it out. 

The Singapore Air twist: Vistara and Air India are both full-service airlines and compete on many of the same routes. The former recently unveiled its flight to London. And holding on to multiple airlines makes zero sense for the Tatas, as one of its directors made clear:

“Our group chairman has clearly stated that the airline businesses have to be consolidated and there cannot be multiple airlines. So Air India being a full-service carrier, it is only sensible that it will come under the Vistara business which is a full-service carrier too. So we are hopeful that our partner will be willing to participate in the future plans that includes Air India.”

But Tatas’ Vistara partner is not part of this bid for Air India—which creates potential for all sorts of complications if Singapore Airlines doesn’t play along. For now, Tata officials seem confident that its partner “can be co-opted later when things improve.”

The bottomline: After a very lambi judaai, the Tatas may finally be reunited with their first love. Whether the grand remarriage proves to be sheer madness or genius remains to be seen. Either way, it’s too late to back out. The wedding invites are likely already at the government printers.

Reading List

BloombergQuint has an overview of the latest bid. Bloomberg News has the best analysis of Tatas’ overarching struggles in aviation. MoneyControl offers a balanced take on the merits of taking on Air India. Indian Express has more on the other two buyers. Business Standard lays out the reasons why Singapore may play along with the Tatas plan. This older Livemint piece has a super-nerdy deep dive into Air India’s assets, and what a potential buyer will get for its money.