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Air India flies back to Tata Group after 7 decades

Conglomerate wins bid to buy troubled government airline it founded in 1930s

Air India has incurred losses since its 2007 merger with another state-owned domestic carrier, Indian Airlines, as it struggled to compete with private airlines.   © Reuters

NEW DELHI -- Tata Sons, the holding company of India's largest conglomerate Tata Group, has won the bid for Air India, the government announced on Friday, bringing the drawn-out process to a close. The debt-ridden state-run airline returns to the group it was founded by after nearly seven decades of being nationalized.

Tata Sons -- through its wholly owned subsidiary Talace Private Limited -- had submitted the winning bid of 180 billion rupees ($2.4 billion) as the enterprise value of Air India, Tuhin Kanta Pandey, the secretary in the government's Department of Investment and Public Asset Management, told a media briefing.

The transaction is expected to close by the end of December.

Tata founded the airline in 1932 -- when India was still under British rule -- and named it Tata Airlines. In 1946, the airline was converted into a public company and renamed Air India.

After India's independence in August 1947, the government bought a 49% stake in Air India, with Tata keeping 25% and the public owning the rest. In 1948, Air India International was launched with flights to Europe, and the service was among the first public-private partnerships in the country.

In 1953, the government nationalized Air India as the then government of Prime Minister Jawaharlal Nehru was reportedly not in favor of private enterprises.

"Welcome back, Air India," Ratan Tata, chairman emeritus of Tata Group, said sharing his signed statement on Twitter.

"The Tata Group winning the bid for Air India is great news!" he wrote. "While admittedly it will take considerable effort to rebuild Air India, it will hopefully provide a very strong market opportunity to the Tata Group's presence in the aviation industry."

At Friday's media briefing, Pandey said that Air India had "a very excessive debt" arising from continuous losses the airline had incurred. Total debt as of Aug. 31 stood at 615.62 billion rupees, he said.

Tata's bid comprises taking over the airline's debt of 153 billion rupees and paying the remaining 27 billion rupees in cash to the government.

A consortium led by Ajay Singh, founder of budget carrier SpiceJet, was the runner-up with a bid of 151 billion rupees.

The government in October last year tweaked the bidding parameters, saying the process would be based on the airline's enterprise value instead of its equity value. Enterprise value includes the equity value, debt as well as cash with the company, while equity value measures the value of the firm's shares.

"In simple terms, it means that the bidder will have to say how much debt he would be able to carry along with Air India," a senior official said at the time. "Whatever enterprise value he quotes, 15% of that he will have to give as cash [to the government] and the remaining 85% he will have to take [as] debt along with Air India."

The government began its second attempt to sell the airline last year, after a previous effort in 2018 to unload 76% of its stake failed to draw any buyers. This time the government put its entire stake on offer. The sell-off will also dispose of the carrier's budget arm, Air India Express, and its 50% stake in Air India SATS Airport Services, a ground-handling joint venture with Singapore's SATS.

The deadline for expressions of interest was extended several times last year due to the coronavirus pandemic, after which the government received seven EOIs by December 14, 2020. Five bidders were disqualified as they did not meet the eligibility criteria. On Sept. 15, the government received the final financial bids from two qualified bidders -- Tata and the Singh-led consortium.

Air India has incurred losses since its 2007 merger with fellow state-owned domestic carrier Indian Airlines, struggling to compete with private budget airlines, as well as rising fuel prices and high debt servicing costs.

Due to the airline's "accumulated debt of about 600 billion rupees, its financial position is in a very fragile condition," the government said last year while kicking off the second sale attempt.

Tata's purchase of the airline will expand its aviation business, which already includes budget carrier AirAsia India and full-service airline Vistara, which are run as joint ventures with Malaysia's AirAsia and Singapore Airlines, respectively.

Singh, who is also chairman and managing director of SpiceJet, congratulated the Tata Group on winning the bid. "I am confident that the Tata Group will restore the glory of Air India and make all of India proud," he said in a statement, adding the government ran "a transparent and flexible" process and gave new impetus to India's disinvestment program.

In an earlier statement, the government said that as of January of last year, Air India, along with Air India Express, had a fleet of 146 aircraft, 82 of which it owned. Air India flew to 98 destinations, 56 domestic and 42 international, and reached 75 additional destinations through code-sharing agreements with other airlines.

"As of today, Air India has 12,085 employees -- 8,084 permanent and 4,001 contractual workers," India's civil aviation secretary Rajiv Bansal said on Friday. "Air India Express has [a total of] 1,434 employees."

After the acquisition, the Tatas will own 100% stakes in Air India and Air India Express, and 50% of Air India SATS.

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