Tata Sons is also reportedly a serious contender for national carrier Air India, an airline the Tata group itself sold to the government 67 years ago.

The Tata group is looking to bid for Air India as well
Money Aviation Wednesday, January 06, 2021 - 16:11

Aviation consultancy firm CAPA India said on Monday that India’s aviation sector is set for consolidation and could see a "2-3 airline system" in the near to medium term, and at the heart of this consolidation are the Tata group’s aviation ambitions, that are now gathering steam.

Mint reported on Wednesday that the Tata group has set up a strategy team to explore various options for its airline ventures. This could include mergers, consolidation and even rebranding, the business daily reported. This team is reportedly being headed by Saurabh Agarwal, the chief financial officer of Tata Sons.

The conglomerate that is present in various sectors from consumer to IT and auto has had its roots in aviation for nearly 80 years, having started India’s first airline Tata Air Services back in 1932. It currently runs Vistara airlines, a full-service carrier in a joint venture with Singapore Airlines where it holds 51% stake and AirAsia India, which is a joint venture with AirAsia Berhad.

Moving ahead with its aviation plans, Tata Sons recently decided to raise its stake in AirAsia India to 83.67%, by taking up 32.67% of AirAsia Berhad’s stake for $37.7 million. The Tatas also have a call option of buying out the remaining 16.33%, exercisable by Tata Sons at any time after the transaction is completed. Whether it decides to do that or not, will reportedly depend on Tata’s bid for Air India.

Tata Sons is also reportedly a serious contender for national carrier Air India, an airline the Tata group itself sold to the government 67 years ago. With another full-service airline in its kitty, the Tatas will reportedly become the second largest players in the domestic aviation market with around 23% market share, and gain a near monopoly on international routes. The Tatas would then be competing with IndiGo, which is the market leader, followed by SpiceJet and other players such as GoAir.

As per the Mint report, Tata group is looking at various options, one of which could be merging AirAsia India with Vistara. However, this would also require Singapore Airlines to consent to the merger. Mint also reports that if the group wins the bid for Air India, it is also looking at the option of merging all three airlines and running them under a new brand. This too, would depend on Singapore Airlines agreeing to it, and on the final conditions put forth by the Union government with respect to Air India’s sale.

While the Tata group continues to weigh all options, another major factor to consider is the aviation industry itself. While rating agency ICRA said that a low base, along with rising leisure travel and gradual opening up of corporate offices, will accelerate the growth of domestic air passenger traffic in FY22, CAPA says that revenues being under pressure with increasing costs will lead to the Indian aviation industry incurring large losses in 2021-22 as well.

"Airlines will have to carry the costs of a large proportion of their fleet remaining grounded, especially those that were earlier deployed on international routes," CAPA India said in its report 'top ten trends to watch in 2021'.

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