How will Air India be turned around by the House of Tatas?

Question No. 1

The airline industry is a financial graveyard barring very few exceptions. Why would hard-nosed business houses get attracted to it like moths to a flame, despite knowing the history? Rakesh Jhunjhunwala is also launching a new airlines this year.Does it make sense?

Question No. 2

The Tatas already have two airlines, Vistara and AirAsia India. How would a third airline add to service, cost and profitability? How would they be different and will they get merged at some point?

Question No. 3.

What can the Tatas do to Air India that the Government did not or could not? Some of the answers are already there. The Tatas have an emotional connect with Air India. The name was apparently chosen by employees some 75 years ago when Tata Airlines was formed as a separate company in 1946. In an opinion poll, employees discarded other three names suggested, namely Indian Airlines, PanIndian Airlines and Trans-Indian Airlines. So, it is like the return of the prodigal.

Tata’s also got a good deal. While Air India had a liability of over Rs. 65,000 crore, Tatas got it for Rs. 18,000 crore, paying upfront around Rs. 2,700 crore. For Tata Sons, the fiscal cost of acquiring Air India has been Rs. 2,700 crore with Rs.15,300 crore being covered in the airline’s debt.

In addition, it gets access to premium parking bays at international airports. For the new owners, therefore, it is a win-win proposition.

All real estate is however with Air India Assets Ltd which will monetisethem. Air India housing colony in Mumbai goes to Adani since the land belonged to AAI and now the airport is privatised. Air India Building at Nariman Point remains with the government. All the art work is with the National Gallery of Modern Art and the plan is to move it all to Delhi and display it in a museum.

As the Tatas are wont to do, it sent out a mailer to Air India employees after acquiring the airline. The mailer, a welcome note, laid down the Tata Code of Conduct and its core values. It emphasized the importance of timely departure of flights.

Jitendra Bhargava, a former executive director with Air India and author of ‘The Descent of Air India’ published in 2013 believes this to be a momentous ascent for the former national carrier.

“Among the few things that need to be done to ensure that the airline is back on the rails includes addressing the software and hardware issues,” he says.The software issues include improving ground service, inflight meal service, the turnout of staff and employee productivity, he adds. Refurbishment of the airline’s fleet and serious investment are the hardware issues he speaks of.

Aviation observer and commentator Vinamra Longani, Head of Operations at Sarin and Co, a law firm specialising in aircraft leasing and finance, explains, “This is their legacy. It will be another befitting tribute to JRD,” he says adding that both Tata JV airlines i.e., Vistara and AirAsia India have paid homage to JRD in their own ways through their aircraft VT-ATV with his retro livery and VT-JRT with its pioneer livery respectively.

In India where people largely fly in low costairlines with a dominant low-cost airline already there in Indigo, the only option is to scale up operations, they point out. The creation of a larger airline combining the strengths of Vistara with Air India, is the best way forward, believes Longani.

“It is only a matter of time before the Tata Group re-align their airline businesses in order to reduce cash burn. And at that point in time, even if we leave Air India Express and AirAsia India out of the mix as they are low cost airlines, we are still talking of a combined full service airline (Vistara + Air India) with around 180 odd aircrafts. The combined entity would have a fairly extensive domestic network which will enable it to offer customers a viable alternative to IndiGo; and enough wide-body aircraft to cater to the demand for international travel,” he adds.

He expects Air India to begin refurbishment of their long and ultra-long-haul routes first, with probably the New York flight operated as AI-101, the flagship flight number leading the way.

“If you have got the product and the service right, given JRD’s legacy, those who may have shunned Air India in the recent past for various reasons, would definitely want to try them out in their new avatar,” he says.

Should the Tata’s be worried of the powerful employees’ unions? “Tatas work with unions in various businesses. As long as unions are aligned with the mission of the organization, it should not cause concern,” they seem to believe. Air India employees, who were not being paid on time over the past few years, also seem happy with timely salaries making a comeback.

Arun Maira, former member of the Planning Commission, who has also held various positions in the Tata Group and authored the book ‘The Learning Factory: How the Leaders of Tata Became Nation Builders’ says, “Aviation unlike let’s say the steel business is very people intensive. It’s a service business and not capital intensive. The Tatas have the orientation to invest in people. So, if the industry requires building up of service ability, the skills and training of people, the Tata’s are generally very good at it.”

Tata’s unique competitive advantage matters, Maira says, recalling JRD taking personal interest in people.

“So much so that when Singapore Airlines started, it sent its employees for training at Air India’s centres,” he recalls.

(This article was first published in National Herald on Sunday)