Disinvestment of Air India

Subject – Economy

Context – Tata takes over Air India

Concept –

The first attempt to conduct a strategic sale of the airline was made in 2001 during the NDA regime, when Atal Vihari Vajpayee was the Prime Minister. At that point, the government of the day wanted to offload 40 per cent of the airline’s equity.
Initially, several foreign airlines, expressed interest. In addition, Indian corporates like Hinduja Group and Tata Group were in the fray. However, when the government clarified that any foreign airline will have to partner with an Indian company to bid, most airlines pulled themselves out of the race.

Why were successive governments keen to sell the airline?

It was said the government, in just the last decade, infused over ₹1-lakh crore in Air India in the form of cash and credit guarantee support.
But the airline continued to make losses, which stood at nearly ₹20 crore a day or ₹7,046 crore for 2020-21.
In 2017, the Centre decided it would hold on to 24 per cent of the equity in the airline; and 76 per cent would be divested. The acquirer would also have to pick up a portion of the airline’s debt. Investors backed away at the prospect of picking up debt, and not a single bid was received.

What was different this time around?

In January 2021, the Modi government brought Air India back to the strategic sale table with significant changes in terms. The biggest change was that the government said it would offload 100 per cent of its stake in Air India.
Further, over the past two years, part of Air India’s debt was transferred to a special-purpose vehicle, and in this round of the disinvestment process, the buyer was to take on ₹23,286 crore of debt out of a total ₹60,074 crore.
In October, the government further tweaked the bidding parameters. A key change was that the Centre took a call to allow prospective bidders the flexibility to decide the level of debt they wish to take on along with the loss-laden airline.
The government said that potential bidders will be allowed to place their bids based on enterprise value, which accounts for the company’s equity and debt.

What do the Tata’s get?

Apart from Air India, Tata Group gets Air India Express and 50 per cent stake in Air India SATS, which provides ground handling services.
For Tatas, over and above the emotional aspect of regaining control of an airline they started, AI’s acquisition is a long-term bet. They are expected to invest far more than what they have paid the government if this acquisition works or them.
Tata Sons, who originally founded the airline in 1932 as Tata Airlines before it was nationalised, already operates two airlines in India – Vistara (a joint venture with Singapore Airlines) and AirAsia India (a joint-venture with Malaysia’s AirAsia).