To fully appreciate Tata group chairman emeritus Ratan Tata’s statement on Friday that the conglomerate may be interested in picking up a stake in Air India should the government decide to privatise the troubled, debt-laden state-backed carrier, it is necessary to ‘rewind’ a bit.
Way back in 1991, Prime Minister P V Narasimha Rao approached Tata patriarch JRD Tata with a thought: how about India’s pre-eminent industrial house re-entering aviation with an airline? After all, the group had started the country’s first airline that was later nationalised and became Air India. JRD was agreeable, and New Delhi had even reportedly impressed upon Singapore to let Singapore Airlines (SIA) form a joint venture with Tata for the purpose.
Well, years, decades rolled on... JRD and Rao have since passed into ages... but the airline never materialised. Yet, Tatas persisted. During 1999-2001, Tata-SIA tried their best to wrest a 40% stake in Air India but the plan came unstuck due to political instability that put paid to the government’s privatisation drive.
On Friday, when Ratan Tata, JRD’s chosen successor, called on aviation minister Ajit Singh in New Delhi with SIA’s CEO Goh Choon Phong in tow, the grand effort that began in 1991 finally appeared to have borne fruit. Never mind the bitter experience last time round when the new airline plan had to be aborted well after receiving the all-important approval of the Foreign Investment Promotion Board (FIPB).
To be sure, the latest Tata-SIA airline attempt is precisely at that stage – FIPB approval. But there appears none of that uncertainty now. As if to underline this, as if to reinforce how close aviation is to Tata’s heart – never mind the doomsayers who vouch that this is one industry that could potentially prove the graveyard for every business; and never mind Tata’s ongoing attempts to operationalise two new airlines – Ratan Tata said the group is game for a play in a third one. “As and when it (Air India privatisation) happens, we would be very happy to look at it.”
“Look at it”, reliable sources confirmed to dna, is a euphemism for Tata’s desire to invest in Air India if the government does bite the privatisation bullet.
Bite it might, if it retains power in 2014, said analysts, referring to Ajit Singh’s interview to dna earlier this month. The government cannot be in the service-delivery sector, Singh had said in the interview. “While Tata expressed his desire on investing in Air India, no decision on this front can be taken in the UPA-II term.”
But a decision may become inevitable sooner or later, given that Air India’s accumulated losses over the last four years are now Rs 15,000 crore. Air India alone accounts for 60% of $14.5 billion that is the overall debt of India’s airlines, as per industry body Capa’s estimates. A planned turnaround plan would cost the government Rs 30,000 crore over the next nine years.
Although Ratan Tata’s interest in Air India remains as strong as ever, aviation experts feel the Tata group may be asking for trouble, given the scale of the carrier’s operations and its financial state.
They point to Tata’s takeover of VSNL which is now Tata Communications and embroiled in legal disputes with the government over land-related issues. “Given Air India’s troubled legacy and a large employee base, managing Air India will be a difficult task,” said an analyst who did not wish to be named.
That is not all. Privatisation is a time-intensive process in India. “There is going to be preparatory work of at least three years. Any hurried drive might affect valuations and investor sentiment,” said Amrit Panduangi, senior director, Deloitte in India.
So why is Ratan Tata keen on Air India in spite of everything?
The 2012 decision to allow foreign direct investment (FDI) in India’s civil aviation sparked interest in several foreign carriers, despite high operational costs. “Airlines are making losses in the current scenario. But, if costs are controlled, airlines can do well. And given Tatas’ previous experience in the airline business, they will be able to manage it well. There is still a lot of scope in the aviation sector,” said Pandurangi.