In 1932, First mail took off from Karachi to Juhu aerodrome in a de Havilland Puss Moth, flown by Indian aviator and business tycoon Mr. J. R. D. Tata. Tata Air Services, as it was known then, was owned by Tata Sons started an airmail service for Imperial mail. It was later changed to Tata Airlines as it began flying passengers in 1938 and made a profit of Rs. 60,000. Tata Airlines continues to operate with the same fleet, but a significant change happened Post-Independence.
Post-Independence, it changed hands as the government acquired 49% of the airline and renamed it as Air India. Within a year, "Malabar Princess" (VT-CQP) took off from Bombay bound for London Heathrow, marking the airline's first international flight. After that, Air India got nationalized under the Air Corporations Act, while J. R. D. continued as chairman till 1977.
Since then, Air India never looked back. Fleet continued to grow, and new services began to add. In 1960 Air India entered Jet Age, numerous international destinations were included, and airlines keep growing. In 2007, Air India and Indian Airlines merged under Air India Limited, and the airline took delivery of its first Boeing 777 aircraft. And the airline was invited to be a part of the Star Alliance. When everything was going right, what could have gone wrong? Was it the timing of execution or the decision itself or a combination of both that has led to the national carrier's downfall.
Firstly, the Naresh Chandra Committee suggested privatization of the airline in 2003 to make it more efficient. Still, later the government shelved the report and focused on the modernization of the airline, plan being increasing the revenue and pay off debt. 111 aircraft were acquired at Rs. 70000 crores, and another 50 planes were booked in a purchase agreement with Boeing, and all this was funded with debt. All this becomes "a recipe to disaster," according to CAG.
The merger of two airlines in 2003 also proved to be a bad idea. Combined losses for Air India and Indian Airlines were Rs 63 crore, which amounted to nearly Rs 7,000 crore in five years. The government's decision was criticized by CAG and observed that it would have been better to have worked out the merger before acquiring.
Air India also incurred a loss of about Rs 671 crore by selling 5 Boeing 777-200 long-range aircraft to Etihad below its cost price. Air India sold these five Boeing to Gulf carrier Etihad for USD 336.5 million, which comes to roughly USD 67.3 million per plane. While the market price of USD 86-92 million per aircraft obtained from other parties. And when one adds the interest paid on loans to procure these aircraft, which stands at Rs 324.6 crore losses increases further.
The government's move to sell Air India and subsidiaries failed in 2018 because the government offered 76% of stakes and the remaining 24% would be in the hand of government. This made many prospective buyers uneasy about government interference. Hence, bidders stayed away from the process. However, this time the story is different. Government has offered to sell its entire stake in the airlines. Apart from the offer of 100% stakes and 50% shareholding in AISATS (a joint venture between Air India and Singapore Airlines), management control rights of the airline will also be transferred to the successful bidder. The deadline for bid submission is set to be 15 March and should roughly assume the organisation to be in $3.26 billion in debt.
Prospective Buyers (Bidders)
- Tatas and Hindujas may show interest in buying the carrier.
- IndiGo is a strong contender, but the airline has already successfully expanded its network nationally and internationally. So, it may not acquire an airline, that is different in aircraft type and functioning.\
- The Hinduja Group and Interups, the US-based fund, have decided to join the race to acquire Air India.
- Things will come to a circle if Tatas acquire the airline. Air India could also help the Tatas scale its business in aviation. The group has two joint ventures—one a full-service airline with Singapore Airlines (SIA) to operate Vistara, and a second with budget carrier AirAsia. Combined, they made a loss of over Rs 1,500 crore in fiscal 2019, a report.
- Foreign airlines such as Etihad and Qatar Airways could tie-up with local players to place their joint bid to buy out the public sector carrier.
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