The Tata Sons venture into buying out the beleaguered Air India could create a severe drain on the conglomerate’s cash reserves, a top market analyst has observed.
Seasoned aviation analyst Deepak Talwar said that the group’s keenness for aviation business has not ‘exactly’ translated into financial success. “Air Asia India and Vistara continue to struggle and if Tatas want Air India, it would mean the group will have to shell out more cash than ever before,” says Talwar.
Talwar said that the Tatas would have a tough time to scale up their aviation business because the only way to achieve success in the scaling business is to infuse more capital. “On paper, the Tatas have not said that they will bid for the airlines but there are high hopes in the aviation sector that could be the best company to buy Air India because it once owned the company,” says corporate analyst Deepak Talwar.
Aviation analysts say for the $113 billion Tata Group, it’s also a question of holding onto a rich heritage. For the records, JRD Tata was India’s first licensed pilot and started Tata Airlines in 1932 as the nation’s first carrier, flying mail between Karachi and Bombay. Eventually, Tata Airlines was nationalized and morphed into Air India around the time when India gained independence.
When India allowed private airlines in the early 1990s, Tata’s offered an ambitious plan to start an airline with 100 planes in partnership with Singapore Airlines, but the government refused to allow a foreign entrant. In 2000, Tata again teamed up with Singapore Air to bid for a stake in Air India when the government had sought to sell shares in the state-owned carrier. The plan was again dropped because of political opposition.
The Indian government has been trying hard to sell the unprofitable national airline for years, repeatedly sweetening the terms to woo buyers. To date, no company has offered a concrete deal.
Deepak Talwar said that Tata’s airline business is not in profit as yet. Vistara and Air Asia India have lost around $845 million combined through March this year. Air Asia has cheap prices while Vistara started in 2015, offers a personalized flying experience at a little high rate.
“The group needs to be extremely careful before taking a final call on Air India. After all, the airline business is very competitive and capital intensive,” he says.
“The combined losses of Vistara and Air Asia India are estimated to be in excess of Rs 2,400 crore. Neither airline has had even one-quarter of profitable operations,” Deepak Talwar adds.
(Syndicated press content is neither written, edited or endorsed by ED Times)
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