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January 31, 2022updated 25 Apr 2022 12:58pm

Tata Group takes Air India under its wing, adding another asset to its arsenal

Air India operates a fleet of 172 aircraft, which includes 87 owned aircraft, 23 aircraft under sale and lease back agreements, and 62 aircraft under dry leased agreement.

By MarketLine  

On 27 January 2022, India’s national carrier Air India was officially handed over to the Indian multinational conglomerate Tata Group, marking a new era for the once troubled airline.

Tata Group purchased the debt-ridden airline in October 2021, for nearly $2.4bn from the Government of India, after it made the terms of the debt less burdensome for the buyer. Air India had its origin as Tata Airlines, when it was founded in 1932 by J. R. D. Tata of Tata Sons, and has now found its way back into the hands of its original owner.

The successful sale of the loss-making national flag carrier is a major victory for Prime Minister Narendra Modi, as it has cost Indian taxpayers an average of approximately $2.6m a day over the past decade. Despite taking on $2bn of Air India’s $8.2bn total debt, Tata Group has gained a strong opportunity to dominate the aviation industry.

The airline has underperformed but remains a valuable asset

Although Air India has been in financial trouble for a while, amassing higher debts as it lost increasingly large chunks of market share, it still has a number of key assets which could prove to be lucrative for Tata Group.

Air India operates a fleet of 172 aircraft, which includes 87 owned aircraft, 23 aircraft under sale and lease back agreements, and 62 aircraft under dry leased agreement. Furthermore, Tata Group now has control of the airline’s 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas. This includes a number of prized slots at London’s Heathrow airport

Tata operates two other airlines, Vistara, India’s only other full-service carrier, in a venture with Singapore Airline, as well as budget airline AirAsia India, a venture with Malaysia’s AirAsia Group. By adding Air India to its arsenal, this gives Tata a combined share of approximately 27% of the country’s domestic aviation market.

Through the acquisition, it will also become the sole owner of Air India’s low-cost arm Air India Express, likely giving it a competitive advantage. The performance of the Indian airlines industry is forecast to accelerate, with an anticipated CAGR of 32.4% for the five-year period 2020 – 2025, which is expected to drive the industry to a value of $14.6bn by the end of 2025. Expectations of strong growth in the industry provide Tata with an opportunity to expand Air India’s market share.

Tata Group has made a number of acquisitions

Tata Group has become increasingly acquisitive in recent years, expanding its presence as a multinational conglomerate.

Supermarket Grocery Supplies, trading as BigBasket, is an Indian online grocery delivery service. The company primarily delivers grocery goods found in convenience stores, home essentials, and food supplies to its customers. In February 2021, the Tata Group acquired a 64.3% stake in BigBasket for approximately $1.3bn, expanding its presence in the lucrative online retail market.

In April 2019, the Tata Steel board approved the merger of Bamnipal Steel and Tata Steel BSL (formerly Bhushan Steel Ltd) with itself. The company was the largest manufacturer of auto-grade steel in India at the time of the acquisition.

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