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NEW DELHI : The divestment of India’s national carrier was concluded on Thursday with the government completing the handover of Air India Ltd, and its subsidiaries, Air India Express and AISATS (a 50% stake), to the Tata group. It was kind of a homecoming for the Maharaja after 68 years—it started operations as Tata Air Services in 1932 and was nationalized in 1953. Mint takes a look at what lies ahead for Air India.

What happens to the airline’s employees?

The Tata group will have to retain all 12,085 employees for at least one year, and may offer a voluntary retirement scheme after that. The central government will continue to provide gratuity and provident fund benefits to all existing employees of Air India and erstwhile Indian Airlines. Replying to a question on whether there will be any changes in benefits provided to employees after privatization of Air India, minister of state for civil aviation V.K. Singh in December said interests of employees were taken care of by the government and incorporated in the share purchase agreement signed with the “strategic partner".

Can the new promoters rebrand the airline?

Air India is a major brand and has as many as eight logos associated with it. The Tatas cannot transfer the logos for at least five years. Subsequently, the logos can be transferred, but only to an Indian entity. The government has specified that the logos of the Air India brand can never go to any foreign company. The Tata group is likely to continue with the Air India brand in the foreseeable future. It may, however, integrate low-cost carriers, AirAsia India and Air India Express, under its flagship, as the group may not renew the brand licence agreement with AirAsia Berhad to operate its no-frills airline under the AirAsia brand after the agreement expires in December 2022.

What will be the strategy of the Tatas with Air India?

The Tata group’s taking over Air India is not likely to impact the airline’s operations in the near term. However, the interiors and exteriors of the aircraft may see Tata branding. The new owners are, however, keen on turning around the finances of the loss-making carrier. Air India’s accumulated losses rose to 77,953 crore in FY21 from 70,820 crore in FY20, the airline said in a statement to BSE. In FY21, its net liabilities exceeded its assets by 58,316.68 crore. It was never profitable after its merger with Indian Airlines in 2007. Industry experts said the Tatas may bring in experts with expertise in turning around loss-making carriers and will be bold enough to take tough decisions such as the dismantling of various unions.

How will the new promoters turn around the loss-making carrier?

A legacy full-service carrier like Air India has a very high cost structure compared to its competitors. The Tata group is likely to negotiate with vendors and lessors, among others to bring down costs. Air India’s cost per available seat kilometre, a metric to determine cost performance, is 18-22% higher than budget airline IndiGo, data from aviation consultancy AT-TV showed.

According to an Air India executive in the know, seeking anonymity, the Tatas might have to spend at least $2 million on each aircraft in the fleet only on refurbishments, apart from added costs on pending maintenance checks. The fleet also needs to be modernized. As things stand, Air India’s aircraft lease contracts are very high, while the Boeing 777 are not very efficient and the Airbus A321 do not offer the same range and capabilities as the new models. (As of 2017, it had a fleet of 121 aircraft (excluding 4 B747-400s) comprising Airbus and Boeing aircraft such as the A319s, A320s, A321s, B777s and B787s).

How does the Tatas benefit from the acquisition?

Air India comes with global brand recall, assets, hangars, and bilateral rights to fly to many countries. It has slots and parking bases at key airports, trained pilots and staff, which provides a ready product to serve the international market. With Air India and Vistara, the Tata group can now pose a threat to international long-haul aspirations of the likes of IndiGo or the international cargo plans of SpiceJet. The acquisition helps the group leapfrog in the domestic aviation space ahead of most of its competitors with a market share of 27%-35%, just behind market leader IndiGo (52-58% market share).

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