Tatas to go solo for Air India EoI, plan to co-opt Singapore Airlines later

Salt-to-steel conglomerate Tata Sons is likely to submit an expression of interest (EoI) for state-owned carrier Air India, the deadline for which ends on December 14. Singapore Airlines (SIA), with which Tata Sons operates full-service airline Vistara, will not be part of the bid in the initial stages, people aware of the development said.
 
Tata Sons did not comment on the issue. A spokesperson of SIA also refused to comment on future investment opportunities.
 
“The opportunity to acquire Air India is too good to let go if the company wants to have scale and size in the business of aviation. In all sectors Tata Sons operates, the focus has been to either be a market leader or No.2. Air India provides that opportunity,” a person aware of the development said.
 
However, Tata Sons management will not like to have a third airline venture and wants to merge Air India and Vistara in future. Besides Vistara, Tata Sons owns 51 per cent stake in low-cost airline AirAsia India.
 
According to latest available data, if Air India comes into its fold, the combined market share of Tatas in India’s domestic aviation market will be around 23 per cent — 10 per cent higher than SpiceJet. Besides that, the group will have a near-monopoly on international routes.

 
“The present situation may not be apt for SIA to participate in an acquisition process,” a second person said.
 
“However, the airline can be co-opted later when things improve. Tatas will want to consolidate their airline business, as both Air India and Vistara operate in the full-service space and certainly can't compete against each other,” the person added.
 
The rules for sale process of Air India permits an interested bidder to change the structure of the consortium one time by inducting new partners.
 
Experts who keep a track of SIA's business said that while the impact of the pandemic has been severe on the company, with vaccines coming in and strong support from the Singaporean government, the company will resume its growth plans soon.
 
In the absence of a domestic market and international travel almost completely suspended, SIA has been forced to ground most of its fleet and is in the process of raising up to $15 billion to mitigate the impact. The airline recently said it planned to deploy only 16 per cent of its capacity in December, and 50 per cent capacity by December 2021.
 
SIA along with Tata Sons invested Rs 1,835 crore in Vistara since the pandemic forced airlines to ground operation in India.
 
“We think there will be a recovery in SIA’s traffic by FY22. South Asia and India is the centrepiece to SIA’s international plans, and if Tatas can assure to handle the bulk of the investment, the company will be eager to grow Vistara’s scale, which without an acquisition will take decades to have a strong international network,” the person said.
 
Government officials involved in the sale process said they expect a good response to the sale process and expect to complete the process by the first half of June 2021.
 
The government had relaxed multiple bidding criteria in order to sweeten the deal, the latest being to allow bids on enterprise value. Enterprise value includes the equity value of a company along with short-term and long-term debt as well as any cash on the company's balance sheet.
 
“We are confident of getting bids this time. There is no reason the relaxed conditions shouldn’t entice a company that intends to have a strong presence in the international market,” when asked about the Tata group’s interest in buying the carrier.