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Three reasons why Tata may buy Air India stake with Singapore Airlines

LiveMint logoLiveMint 21-06-2017 Tarun Shukla

New Delhi: The Tata group, which founded India’s first commercial airline, Air India, which was later nationalized, is considering buying a stake in the debt-laden national carrier in partnership with Singapore Airlines Ltd, a person familiar with the matter said.

“It’s a possibility,” the person said, requesting anonymity. “You sign the cheque and from the very next day imagine the clout you have in the subcontinent, deep into Europe and the US.”

Finance minister Arun Jaitley said on 1 June that he favoured selling the loss-making Air India, although a formal decision on the sale has not been taken. Jaitley added that he had asked the aviation ministry to look at possible ways of privatizing Air India.

Spokespersons for the Tata group and Singapore Airlines declined comment.

ALSO READ: Air India’s long and difficult journey towards privatization

A second person familiar with the thinking in Bombay House, the corporate headquarters of the Tata group, claimed that the conglomerate’s former chairman Ratan Tata and current chairman N. Chandrasekaran have informally (and separately) discussed their interest in Air India with various government officials. Mint couldn’t independently verify this.

The Tata group and Singapore Airlines launched Vistara in 2015. The joint-venture airline will start plying international routes next year.

To be sure, it is not certain the government will go ahead with the “privatization process” or that Tatas will take over the airline.

Still, it can’t be denied that the groundwork for a possible divestment is being put in place.

A committee of top bureaucrats, which includes civil aviation secretary R.N. Choubey, has sent its views on Air India’s divestment to the Department of Investment and Public Asset Management (Dipam), said an aviation ministry official who did not want to be named.

In the next step, a note prepared by Dipam will have to be approved by the Union cabinet. Once the cabinet gives its approval, specifics related to how much stake should be sold and how, will be decided.

“We are far from that stage,” the ministry official added, referring to the sale process.

The Union cabinet is expected to meet on Thursday but it is unclear if the national airline’s privatization plan will be part of the agenda. Finance minister Jaitley is currently on a three-day visit to Russia to boost defence ties.

Choubey, who has been part of the deliberations including those related to Air India’s asset valuation, is also in Paris this week for the ongoing air show.

Three reasons

The first person cited above highlighted three reasons for Tata’s interest in the national airline.

First, chairman emeritus Ratan Tata is passionate about aviation (just as he is about cars). Air India was launched in 1932 by J.R.D. Tata as Tata Airlines. Its name was changed to the current one in 1946. The government decided to take it over in 1953.

Second, Vistara is on the lookout for bigger planes to fly international next year. Air India has enough (its fleet strength is 118). Vistara has still not announced its proposed wide body fleet order.

Third, Air India will provide an unmatched network depth to Singapore Airlines, which itself is under pressure from rivals such as Thai Airways, Cathay Pacific and Emirates.

“Singapore Airlines will become a very strong carrier if this happens,” the person said, adding that the Tata group would probably want a majority stake, a write-off of the airline’s accumulated losses and a reduction in the airline’s considerable debt of around Rs50,000 crore.

In 2000, the Tata group and Singapore Airlines had expressed their interest in acquiring up to 40% of Air India. In 2013, after a meeting with the then aviation minister, Ratan Tata said the Tata group would be interested in buying a stake in Air India if the government were to privatize the airline.

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