Tata Finds Back Its Lost Child: Air India
In a strange reversal of history, the TATA group after 68 years has now taken back their airline, Air India which was founded in 1932 by the legendary industrialist and philanthropist JRD Tata.
Air India, formerly known as Tata Airlines and Tata Air Services, is today the country’s third largest airline with a domestic share of about 10%. However, it has been suffering continuous losses since a long time now. It has been surviving on taxpayer’s debt for the last decade and the accumulated losses of the airline as of March end 2021 was reported as Rs 70,820 crores.
However, this was not the case at the time when it was founded. According to news reports, during his ownership, JRD Tata used to often fly as a passenger himself and note tiny details that had to be fixed. He set high benchmarks by focusing on micro details like the dress and hairstyle of the air hostess’, the inside décor, the quality of wine poured as well as the availability of toilet paper in lavatories on board. His hands-on-leadership proved profitable for Air India and made it a huge success in a short span of time.
After Independence, although the Tatas insisted that nationalization would mean bureaucracy, lethargy, decline in employee morale and fall in passenger services, the government still took over the airline in 1953 on the passing of the Air Corporations Act.
Although the Government owned the airline, its chairmanship was still with JRD Tata. It was after the great air tragedy in 1978, the fall of the Boeing 747 into the sea off the coast of Bombay, killing all 213 passengers and the crew on-board, that he was dropped from the chairmanship of Air India and directorship of Indian Airlines. This lowered the morale of the employees and also led to protests by the cabin crew and officer’s association.
On being asked how he felt about it, JRD’s words were ‘I feel as you would feel if your favourite child was taken away.’
Year after year, the airline has been suffering losses due to its declining service quality in terms of market share, revenues as well as on-time performance, excess staff, low productivity, ageing fleet etc. making it no more the preferred airline.
Since its merger with Indian Airlines in 2007, it lost revenue due to its own inefficiency like lack of aircraft availability, faulty deployment, low utilization of human resources and lack of ancillary revenue.
The main reasons for such losses as reported, were high interest burden on debt, increase in competition especially from low-cost carriers, high input cost and adverse impact of exchange rate variation.
Just before the lockdown, during the financial year 2019-20, the company had incurred a net loss of Rs 7,982.82 crore and the impact of Covid-19 on the airline industry further deepened it, with international travel being brought to a virtual standstill.
The carrier’s liabilities are now expected to cross $20 billion by 2024-2025, which includes losses reported during financial year 2021 due to the pandemic.
Several failed attempts have been made by the government to privatize the airline since years with no bidder showing up at times.
Finally, by winning the bid of Rs 18,000 crore, the airline will now give the Tata group access to more than a hundred planes, thousands of trained pilots and crew, lucrative landing and parking slots all around the world along with the control of 4,400 domestic and international landing and parking slots at domestic airports, as well as 900 slots at airports overseas.
As per the disinvestment deal, out of the combined debt of Rs 61,562 crores of Air India as on August 31, 2021 the Tata sons will pay Rs 2700 crore to the Government and take over the remaining debt of Rs 15,300 crore. The Government on the other hand will take on Rs 46,262 crore of debt which will be transferred to Air India Asset Holdings Ltd (AIAHL).
No laying off employees can be made by Tata in the first year from the date of transfer and a voluntary retirement scheme (VRS) will be given to them in the second year.
To ensure that the Air India remains Indian in perpetuity, restrictions have been put on its transfer which can be made only after 5 years, and that too to an Indian. A business continuity clause has also been incorporated for the first three years.
With all eyes back on the airline after the acquisition, The Tata group will become the second largest domestic airline after Indigo, as they already operate two airlines, Vistara and Air Asia India, and the combined market share of all three is around 26.9 %.
Therefore, in the words of J.K. Rowling, ‘things we lose have a way of coming back to us in the end!’
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