Emotions dances with Elephants– TATA deal of AI.

Whenever an Acquisition takes place, there is always a lot expression of “feelings”….and social media with all its emoticons and emojis have helped to make it easier and even crowd it. Yes, TATA purchased AI and that is emotional. For an emotional society of billion people, this is a great ‘deja-vu’ moment. Emotions are not bad, they are needed to take bold steps. To do something beyond the ordinary, one requires emotional intelligence and strength. Taking over a ?60k crore debt laden airline in an unpredictable post COVID times requires more than the normal. But in business, head rules than heart and thru this deal, did TATAs strike a balance of using both brain and heart?

So, the devil or the God is in the detail – we all know the surface that the overall debt is in the range of ~Rs.60k Cr plus. ?The government had revised the bidding criteria last year and invited bids on enterprise value (equity and debt value), which allowed players the flexibility to quote the debt they were willing to take on instead of a pre-determined, fixed debt along with minimum cash consideration of 15% for equity. Now, after the deal, the Government will take on debt worth???46,262 crore and non-core assets including land and building worth???14,718k crore TATAs Sons will pay???2,700 crore in cash to the Government (15% of the bid amount) and take over the remaining debt of???15,300 crore. All of it will be transferred to the Government's holding company Air India Assets Holding Limited (AIAHL). Net liability on the government comes to ?28,844 crore. That is sheet 1 of how the numbers looks like in the Excel.

The share purchase agreements allow TATA Sons to merge with AirAsia (currently stake of 51%) and the other airlines (Vistara Airline – where TATAs hold 84% stake). TATAs will own 100% stake in Air India, as also 100% in its international low-cost arm Air India Express and 50% in the ground handling joint venture, Air India SATS. Vistara is a joint venture with Singapore Airlines Ltd.

Emotions of the deal - Jehangir Ratanji Dadabhoy (JRD) TATA founded the airline in 1932. It was called TATA Airlines then. In 1946, the aviation division of TATA Sons was listed as Air India and in 1948, Air India International was launched with flights to Europe. The international service was among the first public-private partnerships in India, with the government holding 49 per cent, the TATAs keeping 25 per cent and the public owning the rest. In 1953, Air India was nationalized.

What TATAs get on the tarmac?

Apart from 141 planes and access to a network of 173 destinations including 55 international ones, TATAs will also have the ownership of iconic brands like Air India, Indian Airlines and the Maharajah. Air India and Air India Express have 13,484 total permanent employees.

Currently, Air Asia has a market share of 5.2%, and in Vistara a market share of 8.3%. Together with Air India's market share of 13.2%, TATAs could be in control of 26.7% market share and be the second biggest player after IndiGo.

The Group of Ministers led by Home Minister Amit Shah approved the winning bidder in its meeting on October 4, 2021. The government aims to complete the transaction by December, 2021, when it will transfer its shares and handover the airline to the new buyer.

When Airlines started, it was for travel the distance with luxury. It was a luxury product then. ?Through its phases of evolution, today, it is as good or close as mass transportation system which allows multiple price points and services to a Customer. A Customer who travels business class for his/her official trip may travel by a low cost airline for his personal vacation and keep more money at disposal. So, TATAs exited when the rules of the games were different and has entered again when the rules of the games are completely new. To say, a generation of TATAs were merely users of ‘Airlines’ as a service may be completely incorrect as they did play in the airspace thru Air Asia and Vistara, thus ensuring they read the market with times. To give credit, TATAs seems to be the best experienced to know the Industry and Air India in its current size and shapes. The emotions score here clearly.

Road ahead –

TATAs may be clearly betting on the growing Indian traveler as the market to tap. Roughly 1% of India take to air travel. That clearly sums the opportunity ahead. With its already existing behemoth presence in other allied Industry of Hotels and transportation, one of the best technology Co in its backyard, the opportunity to integrate to leverage for cost and competitiveness is at its doorstep. TATAs may not have to look outside for any of these to be procured or even lose day one. Backed by this is the “emotions” of the deal to a TATAs employee across the various Companies under the brand. The leadership buy-in is right from the top with more TATA leaders welcoming the acquisition by each hour.

So – where is the success factor?

Integration is the one key word that will bring all the jargons under one umbrella and change the color of the umbrella from red to black. As is said, the instruments are available, the song is ready, get the right musician and orchestrate it to perform at its best. Let the Maharaja make you enjoy the emotions of dance with the elephant again !

Share you thoughts (brains) and emotions (hearts) on how this deal will change the skies of India.