The sale of Air India Ltd is finally showing signs of taking off. Many interesting expressions were given for the airline’s strategic divestment, the government said Monday. Although the identities of all the bidders have not been revealed, news suggests that the Tata group and a consortium with Air India employees are among the suitors.
With the Tata group already having established its presence in the aviation sector, there are some hopes of consolidating in the industry if it succeeds with its offer. Varun Ginodia, an analyst at Ambit Capital Pvt. Ltd, said, “The likely acquisition of Air India by the Tata group is positive in the long run as it paves the way for consolidation.”
Cumulatively, Air India, AirAsia and Vistara commanded a domestic market share of 22.9% in October, according to data from the Directorate General of Civil Aviation. That will easily make it the second largest player in the sector, after IndiGo, which enjoys a market share of 55.5%. Currently SpiceJet is the second largest domestic company with a share of 13.4%.
Ginodia added, “The Tata may have three wings – a cheap airline (by merging Air India Express and AirAsia India), a full-service airline (by merging Vistara and Air India) and ground services. Of course, before this that, the Tatas will have to simplify the complex structures with their partners in its existing airlines. ”Needless to say, this is the big if in the equation.
Vistara is a joint venture (JV) of Tata Sons Pvt. Ltd and Singapore Airlines Ltd (SIA), in which the former has a 51% interest and SIA-49%. Reports suggest that the latter is not inclined to join the bid for Air India. Furthermore, Tata Sons owns 51% of AirAsia India while AirAsia Berhad owns the rest. Unconfirmed reports said that Tata’s offer was reportedly sent by AirAsia India. Overall, the seemingly complex interests of the Tata group in the sector can make the process more difficult.
Moreover, as Mahantesh Sabarad, head of retail research, SBICAP Securities Ltd, said, “Mergers are not easy. Remember that the merger of Jet Airways with Air Sahara and the merger of Kingfisher Airlines with Air Deccan has failed miserably.”
But all is not lost. Whether consolidation takes place or not in the process, Air India may well see a resurgence with Tata on the sidelines. According to Sabarad, “If Tata acquires Air India, the country will have better control over international passenger traffic against loss of share to foreign airlines at the moment. The main thing to watch is the price the Tata group will pay for Air India. The current downturn may help keep rates low. “
At the same time the hope of consolidation and possible improvement in the price environment may help the government get a decent offer as well.