For Tata Group, the acquisition of Air India is fraught with huge risks – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-commentary/for-tata-group-the-acquisition-of-air-india-is-fraught-with-huge-risks/articleshow/86877572.cmsSynopsis

Having three separate airlines could be a disaster in the making. Merging the three will result in huge cost savings, including reduced people — starting from not needing three CEOs downwards — and infrastructure. Most importantly, it will prevent three Tata airlines competing with each other and cannibalising each other’s passengers, instead of competing as one major carrier against IndiGo, SpiceJet and Go First.

GR Gopinath

GR Gopinath

Founder, Air DeccanThe news that the Tata Group has won the Air India bid by paying Rs 18,000 crore brings great cheer. Air India was snatched away from the Tatas through ‘nationalisation’ by GoI in 1953. It was done without a dialogue or notice to the Tatas. Why any government should have taken over a perfectly well-run private enterprise and run it into the ground has been a mystery-cum-scandal.

J R D Tata was certainly heartbroken, ruing that his ‘own friend Nehru stabbed [him] in the back’ and that GoI had taken over the airline through the back door. He was retained as chairman of Air India till 1978, and continued to take it to great heights.

It’s hard to imagine today that Singapore Airlines, considered the world’s best airlines today, was set up with Air India’s technical and operational support after being invited by Lee Kuan Yew’s Singapore government in the early 1970s. Despite the uncalled-for napitals and key cities of strategic and commercial importance. It also has many highly qualified and trained pilots, engineers and crew, even as it is overburdened with redundant staff.

With a helping hand from the government, pliant bureaucrats can be dealt with. Most importantly, Air India is still a much-loved brand that evokes nostalgia and national pride at the same time. Much like the way British Airways, Air France, Lufthansa and Qantas are for Britain, France, Germany and Australia, respectively — even after all these airlines have been privatised.

The acquisition of Air India, however, is fraught with huge risks. The Tatas already have two airlines, AirAsia and Vistara. Both are bleeding cash. There are problems in those partnerships.

Malaysian entrepreneur Tony Fernandes, who still holds some stake in AirAsia, and is facing trouble with his other airlines, has virtually dissociated himself from the Indian airline he floated with the Tatas.

Singapore Airlines, joint venture partner of Vistara, isn’t enthusiastic about the Tatas acquiring a third, heavily-in-debt airline that doesn’t have a ‘cultural fit’. But the Tata Group may succeed, if it can merge all three airlines into a single entity with a new vision and fresh dynamic leadership team to steer it. That needs an understanding with AirAsia and Singapore Airlines to iron out the crinkles between the parties. The Tatas may have already thought this through before putting in its bid.

Having three separate airlines could be a disaster in the making. Merging the three will result in huge cost savings, including reduced people — starting from not needing three CEOs downwards — and infrastructure. Most importantly, it will prevent three Tata airlines competing with each other and cannibalising each other’s passengers, instead of competing as one major carrier against IndiGo,SpiceJetNSE -1.13 % and Go First.

If the new Tata dispensation can set aside its ego, and convert all domestic routes to a single alleconomy class — on the lines of Air France and other major European carriers — and have only international flights offer business class along with economy, the new Air India may just be able to pull it off and compete against the global big boys.

No doubt it will be a challenge to compete against the dominance of low-cost carriers. No full-service carrier has succeeded against them — anywhere in the world.

The Tatas, however, have the management depth, the capacity to raise capital, global exposure, and both appetite and the stomach for this kind of entrepreneurial risk. And with Ratan Tata still active in the conglomerate — back at the helm of the group and a keen aviator himself passionate about the legacy of Tata Airlines — the stars are certainly aligned in their favour. Such an acquisition is full of challenges. If it’s pulled off, it will be good for Air India, its employees and the consumer at large. GoI will have finally made amends and redeemed itself.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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