Air India turnaround will cost Tatas more than $5 billion, industry experts say

The Tata Group is betting more than $5 billion, or about Rs 37,500 crore, over the next five years on Air India to turn around the flag carrier, industry experts have said. The amount, estimated by one of them, covers the Rs 15,000 crore of debts that the group has taken over and the losses that it will have to finance. However, that does not include asset-backed costs like refurbishing aircraft which will be higher, the person said.

To make the business profitable, the automobile-to-aviation conglomerate should have a single airline entity instead of three, increase ticket prices by at least 15%, rationalize capacity by eliminating loss-making routes, get rid of Boeing 777 planes in their current configuration and focus on the international product, the experts said.

Overhauling onerous engineering contracts and streamlining the workforce will be a huge challenge, they added.

Tata Sons officially took over Air India on Thursday, 69 years after the government nationalized and took control of the airline from its founder JRD Tata in August 1953.

“Tatas has the ability to fix it. In fact, all three airlines – Air India, Vistara and AirAsia India – are very fixable,” said a board member of one of the biggest low-cost carriers. in the world. “Chandra (Tata Sons Chairman N Chandrasekaran) will either have an egg on his face or a crown on his head,” he added.

Air India’s cumulative losses at the end of March stood at Rs 83,916 crore. AirAsia India’s loss for FY21 was Rs 1,532 crore and that of Vistara was Rs 1,612 crore.

The largest expenses, besides funding losses and debt, will be for refurbishing aircraft, experts said.

“The low-hanging fruits are on-time performance and at least part of fleet renovation,” said Dinesh Keskar, former Asia-Pacific and India sales manager at Boeing. “Streamlining the workforce, especially given the one-year contract that they can’t touch for a year, is a much bigger challenge,” he said.

In terms of aircraft value, Air India is Boeing’s largest customer in India.

Air India has 12,085 employees on its books. Tata Group will have to keep them all for one year. If they are subsequently made redundant, this must be done through a voluntary pension scheme.

“They need to find a really good CEO in the global aviation market,” said an industry expert who asked not to be identified. “He should stay 4-5 years, sort out his issues and move on.”

The government has reimbursed most of Air India’s lessors and suppliers. He ended onerous contracts such as the sale and leaseback agreement on 21 Boeing 787 Dreamliner jets, and paid rents throughout the tenure so Air India now owns them.

One of the industry executives said the Tatas should scrap the Boeing 777s because their configuration does not meet global standards. “To make a global product, the airline must have wide-body aircraft configured to global standards,” he said.

Reconfigure existing aircraft by destroying galleys and toilets etc. will be very expensive, he said.

Comments are closed.