The race to rule Indian skies likely to hot up in 2022

Come 2022, the battle for Indian skies will hot up as never before in the world's third largest aviation market. For long, it was a monopoly for the government carriers in India, be it Air India or Indian Airlines. In recent time, it is Indigo that is dictating the aviation market with 57 per cent market share.

The change will be witnessed thanks to the successful sale of Air India after a more than a two-decade effort. "Welcome back, Air India", tweeted Ratan Tata within minutes of the announcement of the sale of Air India by the government not only signified the return to the original owners after 89 years and exhibited the delight of the Tata Sons on fulfilment of a long-cherished desire, but much more, as exhibited in another tweet.

The other tweet was from N Chandrasekharan, Chairman of the Tata Trust, making the intent clear to revive the lost glory of the airline, stating, "It will be our endeavour to build a world-class airline, which makes every Indian proud." This is not only an intent, but a challenge thrown at the market.

The market is already recognizing this. Indigo CEO, Ronojoy Dutta, said so, "I see a formidable competition……" He went on to add that sale of Air India was a sensible thing to do, and welcomed this. Fact remains that India's biggest airline - Indigo- is staring at real competition for the first time and may have to work at providing better comfort to flying passengers.

New players are also emerging on the horizon. By the summer of 2022, another ultra LCC (Low-cost carriers) in the name of Akasa, led by the billionaire investor Rakesh Jhunjhunwala, is expected to hit the skies. The government has issued no objection certificate to them, and they should be applying soon for air operator permit. The airline is likely to place order for about 100 Boeing 737 Max and expressing their aspiration to be "the nation's most dependable, affordable, and greenest airline" may not be music to the ears of Indigo.

Jet Air 2.0 is also on the anvil. The Jalan Kalrock Consortium (JKC) have acquired the bankrupt airline, which had stopped operation in April 2019. Once they were leading the industry and efforts are at hand to re-start them in the new year. Ambitious Ajay Singh of SpiceJet has shown his mettle by reviving his airlines from the brink of closure. GoFirst has managed themselves well and will continue to endeavour for greater market share. They are also planning their maiden public issue, having already received Sebi's nod.

The seeds of the Indian aviation industry were sown in 1929 when JRD Tata became the first qualified pilot from India. His enthusiasm, passion and hard work led to the formation of Tata Airlines. Their flying journey began on October 15, 1932, when Tata Airlines flew a single engine De Haviland Puss Moth with JRD Tata himself in the cockpit, ferrying mail from Karachi to Mumbai, landing at Juhu airport. This plane had just one passenger seat!

By 1946, Tata Airlines had 1/3rd domestic share and went international in 1948. But in 1953, Jawahar Lal Nehru decided to nationalise the airlines in the name of socialism. In 2001, Atal Bihari Vajpayee mooted the idea of selling the airline, but the idea was stalled. Six years later, in 2007, AI and Indian Airlines were merged by Manmohan Singh, a decision questioned by many on commercial grounds. In March 2018, the Modi government decided to sell 76 per cent stake in Air India, AI Express and handling company AI-SATS, but no bidder showed interest.

The government changed strategy in 2019 and decided to completely exit Air India, Air India Express and AI-SATS. As against a reserve price of Rs 12,906 crore, Tatas won the bid with an offer of Rs 18,000 crore, taking over a debt of Rs 15,300 crore out of a total debt of Rs 61,562 crore as on 31st August 2021, and paying the balance amount of Rs 2,700 crore to the government.

The only other bidder, Ajay Singh of SpiceJet had submitted a bid for Rs 15,100 crore.

The new battle will begin once the process of AI hand over is complete. December 31, 2021, is the target set for the purpose. It is a very short period to complete the formalities, considering the way the government generally works. But present government has displayed speed on multiple fronts.

Air India could also get added to such a list. This hope was generated when the government moved swiftly and issued a letter of intent (LoI) to Talace, the bid winner, a wholly owned subsidiary of Tata Group, within hours of the announcement of sale, earlier this month.

While regulatory process might be expedited, Air India will have to grapple with the legacy issues that had led to a daily loss of Rs 20 crore by the airlines, which was being funded by the taxpayers for years. While they go into legacy issues, a parallel challenge will be to take a call in regard to integration of their investments in AI, AI Express, Vistara and Air Asia India. Such a move will not be easy given the union issues at AI, multiple types of aircrafts, and different work cultures.

Tasks are cut out for Air India to replace management, refurbish aircrafts, renegotiate vendor contracts, and refinance the debt. While no employee out of a total strength of 12,085, including 4,001 on contract, will be removed for one year as per the sale terms, the top management will undergo a complete change with a mix of Tata talent, Air India representatives and other professionals from the market.

Even the existing staff will need a refresher course and a reorientation.

Image make-over will be the biggest customer facing effort. The glamorous days of swanky aircrafts, Maharaja courtesies and on flight friendly service from well-trained sari clad hostesses were lost long ago.

Today, Air India is saddled with many ageing aircrafts, having broken arm rests and missing handles of hand-baggage storage spaces. Even the Air India lounges at airports give shabby look, with poor quality food. All these will have to be changed. Tatas will do good also to bring the familiar loveable figure of Maharaja created by Bobby Kooka in 1946 back in focus as its logo. This will add to the efforts in regaining the reputation of being one of the most prestigious airlines of the world.

One reason SpiceJet survived under the leadership of Ajay Singh was re-negotiation of all vendor contracts. With multiple airlines under its umbrella, Tatas are even better placed to do so, offering larger contracts, and using technology based efficient control systems. They can also use their in-house flight catering service and their travelling crew staying in their owned hotels in various cities, including overseas, to their advantage, to mention a few.

Bucks will finally stop at the purse. Tatas have bought the government airline for Rs 18,000 crore but will need to bring a lot more to emerge as a winner in the Indian skies. Even though most of Air India's debt has been taken over by the government, money will be needed not only for refurbishing the existing assets but also to buy new fuel-efficient aircrafts. One estimate is that Tatas will have to infuse an equity of Rs 7,500 crore to begin with.

Air India 3.0 is likely to begin with a much bigger market share than the existing 13.2 per cent. Tatas will have four airlines in their fold now: two low-cost in Air Asia India and AI Express and two full-service in AI and Vistara. They will be well advised to consolidate them and start from a new slate of 25 per cent combined market share under Talace. Such a consolidation will add multiple strengths to a new Air India, cost saving included.

Notwithstanding the dent in the image and piling losses, Air India enjoys many strengths. It has a strong brand recall. They have prime slots at hubs like Heathrow (London), JFK (New York) and CDG (Paris), not to speak of Delhi and Mumbai. They have aircrafts capable of flying ultra-long-haul routes. Their fleet has 135 aircrafts including 49 wide-bodies. They also have trained staff and owned service capabilities. Equally important, they have committed traditional fliers including on international routes due to 'feel of India' through Indian - language speaking crew and Hindustani in-flight meals

Air India's return to Tatas heralds a new dawn for Indian skies. India's air travel market is already cutthroat with strong competition making it difficult for the industry to make money. There is a possibility that Air India in its new avatar may themself face the same situation. But that will defeat the purpose of Tatas getting back the heirloom. The philosophy of the new management at Air India should be to be both competitive and profitable at the same time, to be called a winner.

(The author is an Ex Managing Director, SBBJ (SBI) Group)