Tata Sons confirms it is weighing bid for Air India, may make formal bid by end of this month

MUMBAI: The Tata Group has begun due diligence on beleaguered national carrier Air India and may make a formal bid close to the official deadline at the end of this month. The focus at the moment is to examine business synergies and viability, it is learnt.

Officials said it is too early for discussions around funding or the possible business structure till the due diligence is complete. Confirming the development officially for the first time, a Tata Sons spokesperson said: “Tata Sons is currently evaluating the proposal and will consider a bid after due consideration and at the appropriate time. There is no plan to bring in a financial partner.”

Other airlines interested in the national carrier are understood to be lobbying to carve out Air India Express to enable them to bid for the low-cost airline, according to people familiar with the bidding process. However, for now, the entire airline is on the block as one entity, including the real estate assets, said officials close to the Tata Group.

The conglomerate has engaged top legal firms and consultants to conduct the due diligence. There has been speculation about the group planning to merge AirAsia India (in which Tata Sons owns 51% stake) and Air India into a single entity after buying out joint venture partner Tony Fernandes.



But Tata Group officials said there have been no formal discussions on this yet. The group has two aviation joint ventures. The first is the five-year old full-service airline Vistara, in which Singapore Airlines is the strategic partner (with 49% shareholding). The second is budget carrier AirAsia India, in which Tony Fernandes’ AirAsia Berhad is the partner.

“This (buying Air India) is a complicated proposal. It will need a lot of legal understanding, stakeholders’ support and governmental assistance to execute it. There are as many positives as negatives in it,” said a top Mumbai-based legal expert. He requested anonymity.

Vihang Virkar, aviation law expert and partner at PDS Legal, said a deal will require immense effort if the Tata Group decides to pursue it. “The group has to manage multiple factors: the conflict of interest and potential non-compete arrangements with Singapore Airlines and AirAsia; future funding requirements; and the operational complexities of running three separate airlines. And if the acquisition does happen, would the Tatas get approval from the Competition Commission of India, since they would be in a dominant position in the domestic civil aviation market,” Virkar said.

As per provisional figures, Air India’s total debt stood at Rs 58,351.93 crore as on March 31, 2019. The government has sought to make the ailing carrier attractive by reducing the debt and offering 100% stake. Bidders for the airline will have to absorb Rs 23,286.50 crore of debt while the remaining will be transferred to Air India Assets Holding Ltd — a special purpose vehicle.

Legal experts said that because of its position as the national carrier, Indian regulations give Air India an advantage over other airlines in terms of flight route allocation and access to airport infrastructure.

“That advantage will probably be lost once Air India is acquired by a private player like the Tatas. Huge debt, and liabilities related to an unusually large workforce are the other challenges,” said Virkar. However, he said, there are positive aspects too.

“The positives include some aircraft that are owned (as opposed to being leased) by Air India, several profitable international routes and real estate at prime locations.”