Challenges abound as Tata draws up a flight plan for Air India
By Aditi Shaha
NEW DELHI (Reuters) - Tata Sons' purchase of indebted, state-owned Air India, valued at $ 2.4 billion, will give the conglomerate instant access to valuable air rights and landing sites that will help it regain market share from overseas competitors.
However, industry executives warn that any success will be a long and complicated process, costing more than $ 1 billion and requiring myriad issues to be addressed, including its worn-out fleet, poor service, and lack of a charismatic leader.
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Air India, with its Maharajah mascot, was once known for its lavishly decorated aircraft and excellent service, championed by the airline's founder, JRD Tata, India's first commercial pilot.
But since the mid-2000s, its reputation has declined as financial difficulties increased. It flew wide-body aircraft with business-class seats in disrepair and put some of its new Boeing Co 787 Dreamliners on the ground to use for spare parts. Customers have had many delays and employees and suppliers have not always been paid on time, executives said.
"If you don't have newer or more reliable aircraft, no matter what you do, you're going to have a problem," said a veteran aviation manager who was not authorized to speak publicly on the matter.
The transfer of ownership from the government to Tata is expected to take place by the end of the year. The company will then have until the summer of 2022, when a surge in demand for COVID is expected to address the issues, the person added, estimating it would cost more than $ 1 billion to Air India's 141 aircraft overhaul and up to $ 300 million to retrain staff and improve operations and service.
The numbers do not include buying or leasing new aircraft.
Tata and Air India declined to comment.
POINT TO POINT
Air India's greatest competitive advantage is the ability to fly non-stop to destinations such as the US and Europe, where Air India has lucrative landing rights. Foreign hub carriers like Emirates and Etihad Airways can only compete with one-stop options.
Many industry experts predict that post-pandemic non-stop flights will become even more popular, especially among lucrative business travelers.
"I firmly believe that a passenger who has a choice has a choice to fly point-to-point," said Robert Martin, CEO of lessor BOC Aviation, at a CAPA Center for Aviation event last week.
Foreign airlines dominated international traffic to and from India before the pandemic broke out.
If an upgraded Air India can win back even 20% from other global airlines, it would be a big boost to bottom line results, the industry manager said.
TAJ SERVICE LEVELS
Air India also needs a charismatic and experienced executive along the lines of JRD Tata or Richard Branson to rebuild the airline's service culture, experts said.
Tata's experience building India's largest hospitality chain with Taj hotels as its flag bearers could help with staff and service, said Dilip Cherian, an image consultant. The company also owns the luxury car brand Jaguar, as well as information technology firms, steel concerns, and other corporations.
"The hospitality companies will do a lot to help them get the image right. The Taj fits in very well with the nature of Air India's culture of the early years," said Cherian.
Tata also has controlling interests in Vistara, a premium joint venture with Singapore Airlines and AirAsia India, a low-cost airline of the AirAsia Group. Tata has benefited from the expertise of its partners, but neither company is profitable.
With three airlines, Tata is likely to have a strong negotiating position with aircraft manufacturers, engine manufacturers and lessors, as well as with suppliers, airport operators and fuel companies, analysts say.
Air India had approximately $ 2.1 billion in unpaid bills that the government took over prior to selling the airline to Tata.
The airline enjoys goodwill in the international market because of its legacy, said Anuj Trivedi, partner at Link Legal law firm that assisted Air India on the deal.
"It won't be easy and there will be challenges, but with Tata there is hope that Air India will take off again," he said.
(Reporting by Aditi Shah, Editing by Jamie Freed and Gerry Doyle)
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