Sure, Air India has losses, but its long list of assets is impressive too

Tata group won the bid last year to acquire the debt-ridden national airline

From January 2020, when the Air India Preliminary Information Memorandum (PIM) was floated to October 2021, when the Air India sale is likely to be finalised - a lot of water has flown under the bridge.

The process reached its end game as the Tatas had won the bid last year to acquire the debt-ridden 'Maharaja'. The airline was sold to Talace Private Limited — a subsidiary of the Tata group’s holding company — for Rs 18,000 crore on October 8. The other bidder was Ajay Singh, the owner of SpiceJet, in his personal capacity.

Air India is set to be officially handed to Tata Group today as Chairman N Chandrasekaran is in Delhi and will be meeting PM Narendra Modi, CNBC-TV18 has said.

Also Read: Tata Sons wins bid for Air India

When the PIM was released, the airline industry in India was on an upswing. New highs were reached each month in terms of traffic, fleet induction, and airport expansion. A once-in-a-century event like the COVID-19 pandemic has not been able to shake the government’s resolve to sell off Air India.

New Delhi has stepped in at regular intervals and there were eleven corrigenda to the PIM, but the focus on disinvestment continued. With governments bailing out airlines across the world, the chances of any larger carrier investing in Air India were diminishing with each passing month. Not without reason – such a bid was sure to raise a smirk in their home market for using money lent for survival to buy a carrier which has been in losses for as long as one can remember.

Air India and its assets

Air India has long been referred to as a national asset. In a country where selling the family silver is frowned upon and Air India is often referred to as family silver, one wonders how a loss-making entity can be referred to in this manner.

However, the airline does have assets - which will add value to its potential buyer. The sale is coming in with 100 percent of its subsidiary - Air India Express and its 50 percent stake in AI-SATS, the ground handling company.

Fleet: The two airlines have a fleet of 144 aircraft as per data released by the Ministry of Civil Aviation. This does not include the four 4 B747s which are supposed to be transferred on the books of Alliance Air which will remain with the government.

Also Read: Here’s why Air India’s new owner will have its work cut out

While the B787 dreamliners are on lease and the B777s are still reeling under the finance lease, these lease rentals can be renegotiated. The B777s are also getting older which means that the new owner could look at replacing them with modern fuel-efficient aircraft without worrying about the residual value of the asset.

At 144, this is the second largest fleet in the country with only IndiGo ahead of the Air India group.

Bilaterals: When Jet Airways suspended operations, there was a scramble to get hold of bilateral routes of the airlines. The most popular routes from India - those to the Middle East, Singapore, Hong Kong, London, Dhaka and Kathmandu are all constrained by bilateral agreements. On most of these routes, Air India has a very strong presence. While bilaterals are allocated by the government, rarely are they evoked and the biggest asset which the airline will carry along is the bilateral rights. Air India has unused bilateral rights to many countries like those in CIS, Russia, Bangladesh and Hong Kong which will help the new owner mount additional flights in the near future. In addition, Air India Express has 627 departures a week - primarily to the Middle East.

Slots: Over the years, domestic airports have become as congested as their international counterparts. While the reasons are many starting with years of neglect, a slot pair at such airports automatically guarantees some traffic. Air India operated 2712 departures in November 2019 and currently is the second largest player at Delhi - the largest airport in the country by air traffic as well as departures.

With the international network, Air India holds 2738 slots across 42 destinations which include some of the most congested airports like London Heathrow, New York JFK, Singapore Changi and Hong Kong.

Air India Express holds 651 weekly slots which include those at congested airports like Singapore and Dubai.

Fixed Assets: Air India has deals in place with Mumbai and Delhi airports for land parcels which host simulators amongst other things. While the land parcel will not be transferred to the new owner, the new owner can continue with the simulator and office space - subject to separate deals. With both cities being expensive to operate, having such a facility in the vicinity of the airport is a big plus.

AISATS also has its own building on a leasehold land in Bengaluru - which is fast emerging as a third hub in the country with potential to dethrone Mumbai as second busiest domestic airport.

Human capital: Trained staff is hard to come by. While it was largely believed that salaries have dropped due to pandemic and subsequent layoffs, things are returning to normal and having a large pool of trained manpower is very important for any buyer - which one gets with Air India.

Tail note

After a few failures on the disinvestment front - if the government can pull off Air India’s privatisation in the current climate, it will be a huge thumbs up and booster for other companies lined up for disinvestment. While most agree that the government should step away from areas like hospitality, Air India evokes a mixed response with a strong lobby wanting to have the airline continue as a government enterprise.