The sale of Air India Ltd is finally showing signs of taking off. Several expressions of interest have been received for the airline’s strategic divestment, the government said on Monday. Although the identities of all bidders have not been revealed, the news suggests that the Tata group and a consortium involving Air India employees are among the contenders.
As the Tata Group has already established its presence in the aviation sector, there is some hope of consolidation in the industry if it succeeds in its offer. Varun Ginodia, analyst at Ambit Capital Pvt. Ltd said, “Tata Group’s likely acquisition of Air India is positive in the long run as it paves the way for consolidation.”
Cumulatively, Air India, AirAsia and Vistara achieved a domestic market share of 22.9% in October, according to data from the General Directorate of Civil Aviation. This will easily make him the second largest player in the sector, after IndiGo, which enjoys a market share of 55.5%. Currently, SpiceJet is the second largest domestic airline with a share of 13.4%.
Ginodia added: “Dad could eventually have three wings – a low-cost carrier (by merging Air India Express and AirAsia India), a full-service carrier (by merging Vistara and Air India) and handling services at ground. Of course, before that, Tata will have to simplify the complex structures with its partners in its existing airlines. “Needless to say, this is the largest if it is in the equation.
Vistara is a joint venture (JV) of Tata Sons Pvt. Ltd and Singapore Airlines Ltd (SIA), in which the former holds a 51% stake and SIA holds 49%. Reports suggest that the latter does not want to join the offer for Air India. Moreover, Tata Sons holds a 51% stake in AirAsia India, while AirAsia Berhad holds the rest. Unconfirmed reports said Tata’s bid was submitted through AirAsia India. In general, Tata Group’s seemingly complex interests in the sector can make the process more difficult.
In addition, as Mahantesh Sabarad, head of retail research, SBICAP Securities Ltd, said, “Mergers are not easy. Remember, the merger of Jet Airways with Air Sahara and the merger of Kingfisher Airlines with Air Deccan were very unsuccessful. “
But not everything is lost. Whether the consolidation takes place or not in the process, Air India could see a change with Tata by its side. According to Sabarad, “If Tata acquires Air India, the country will have better control over international passenger traffic than the loss of quota for foreign airlines today. The main thing you need to keep in mind is the price that the Tata group will pay for Air India. Here, the current recession can help keep ratings low. “
At the same time, the hope of consolidation and a potential improvement in the pricing environment can help the government get a decent offer.