Air India sale: Life comes full circle for Tatas

It is also the third time lucky for BJP-led governments at the Centre, as their two previous attempts at privatising Air India had failed

As the process for the privatisation of the state-owned Air India reaches its final lap, there are all indications that the Tatas will be the new owners of the Maharaja. In a clear case of life coming full circle, the Maharaja is likely to go back to the Tatas, who originally started the airline in 1932 under the leadership of JRD Tata. The airline was taken over by the government in 1953, but JRD Tata remained at its helm till the Janata Party government removed him.

While a formal announcement on the winner is yet to be made, a Committee of Secretaries is said to have cleared the Tata bid as the winner. The Tata bid is said to be about Rs 2,500 to Rs 3,000 crore more than the reserve price of between Rs 15,000 to Rs 20,000 crore set by the government. A formal announcement is expected after the Union cabinet clears the deal.

The Tatas and SpiceJet's Ajay Singh had bid for Air India, with the Tatas emerging the winner in the race, which proved to be third time lucky for the government. The Bharatiya Janata Party (BJP) government's two previous attempts at privatising Air India had failed.

Also read: Tata Group willing to acquire 15% of Air India's debt: Report

Air India that the Tatas are getting now is a very different airline from the one JRD Tata started and mounted its first international flight with a brand new Lockheed Constellation L-749 on the Mumbai-Geneva-London flight route with Air India International (AII) 's colours. At that time, AII only flew on international routes. This was also the start of a glorious journey for the Maharaja.

On its journey, Air India notched up many firsts to its credit. It was the first airline in Asia to induct the Boeing 707 in 1960. In an attempt to become India's ambassador abroad, Air India added a touch of India to its aircraft. The windows of the Boeing 747 in its fleet had jharokhas painted on the windows. Air India designed its own interiors for these aircraft.

These glory days continued for two decades, but things began to sour for Air India towards the 1980s with people being inducted from outside the airline. Since Michael Mascarenhas retired in 2013 as managing director, a bureaucrat has almost always held the airline's top position.

Read | Air India sale: Third time lucky?

While Air India was ferrying passengers from India to various parts of the world, its domestic counterpart, Indian Airlines, was entrusted with flying passengers within the country, which it did very successfully till 1993 when private airlines were allowed to start operations.

Like Air India, Indian Airlines, too, had a glorious past. By 1966, Indian Airlines Corporation (IAC) was operating over 100 flights a day over a route network of over 36,000 km and boasted of carrying one million passengers annually, making it one of the largest domestic airlines in the world. In 1969-70, the airline earned Rs 8.50 crore in foreign exchange.

In its heydays, Indian Airlines introduced the concept of a metro shuttle in 1999 — an hourly departure between Delhi and Mumbai at a time most people thought there was no market for so many flights.

In 2007 the government merged Air India and Indian Airlines, which had both been created by the 1953 Air Corporation Act of Parliament - the entity which the Tatas are believed to have won. The new owners will get a 100 per cent stake in Air India which includes both domestic and international routes, and a 100 per cent stake in Air India Express, which was started in 2004 and primarily flies between Kerala and the Gulf.

Also read: Govt looks to announce winning bid for Air India next month

Besides this, the new owner will also get over 2,700 utilised slots abroad and over 4,400 slots at various airports in India. A slot is defined as the scheduled time of arrival or departure made available at an airport to an airline for operating regular flights. In addition, the new owner will also get 1,500 trained pilots and around 2,000 engineers to take care of the fleet.

Eventually, the merger between Air India and Indian Airlines did not work as there were way too many differences in the work cultures of the two. Arvind Jadhav, the then chairman and managing director, told a parliamentary committee in 2010 that nowhere in the world had a merger been successfully completed.

Meanwhile, Air India's fortunes were nosediving. The airline ran up losses year after year, and the situation became so dire that the government had to come up with a 10-year bailout package of over Rs 30,000 crore to save the airline in 2012.

But even that did not seem to help. In June 2019, Hardeep Puri, then Minister of Civil Aviation, told the Lok Sabha that in 2014-15, the government infused Rs 5,780 crore, and the airline posted a loss of Rs 5,859.91 crore. The following year the fund infusion was to the tune of Rs 3,300 crore, with the airline reporting a loss of Rs 3,836.78 crore. The Maharaja's financial health continued to deteriorate.

Given this situation, it left the government with little choice but to divest its stake in the airline. This time, the government sweetened the divestment by not predetermining the airline's debt levels and leaving it to the market to decide.

In addition, the Central Board of Direct Taxes (CBDT) said that the buyer of a state-run company could carry forward losses of the erstwhile state-owned company and claim up to 30 per cent tax rebate annually.

(The writer is a journalist)

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.