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Tata Sons acquired the heavily indebted state-owned Indian Airlines for US$2.4 billion, which will give the group immediate access to valuable flight rights and landing time, which will help it regain market share from foreign competitors.
But industry executives warn that any success will be a long and complex process, which may cost more than $1 billion, and will need to solve countless problems, including a dilapidated fleet, poor service, and lack of charismatic leaders.
Air India and its mascot maharajah were once famous for their ornately decorated aircraft and first-class service. The founder of the airline was India’s first commercial pilot JRD Tata.
But since the mid-2000s, its reputation has declined as financial problems have intensified. The business class seats of its wide-body aircraft were poorly repaired and some of its new Boeing 787 Dreamliners were grounded for use as spare parts. Executives said that customers face many delays, and employees and suppliers do not always pay on time.
“If you don’t have a newer aircraft or a reliable aircraft, no matter what you do, you will have problems,” said a senior aviation industry executive who was not authorized to talk about the matter publicly.
The transfer of ownership from the government to Tata is expected to be completed by the end of the year. The person added that the company will resolve these issues by the summer of 2022, when the post-COVID demand is expected to surge. It is estimated that refurbishing Air India’s 141 aircraft will cost more than US$1 billion, and retraining staff will cost up to US$300 million. Improve operations and services.
These figures do not include the purchase or lease of new aircraft.
Tata and Air India declined to comment.
Advantages of direct flights
Air India’s biggest competitive advantage is its ability to fly non-stop from India to destinations such as the United States and Europe, where it enjoys generous landing rights. Foreign hub airlines such as Emirates and Etihad Airways can only compete with one-stop options.
Many industry experts predict that direct flights will become more popular after the pandemic, especially among lucrative business travelers.
Robert Martin, the chief executive of BOC Aviation, the lessor, said at an event at the CAPA Aviation Center last week: “I firmly believe that if passengers have a choice, their favorite is point-to-point flight.”
According to government statistics, before the pandemic hit, foreign airlines dominated international traffic in and out of India. Air India had a 19.3% share in the last quarter of 2019, including its low-cost division Air India Express.
The industry executive said that if the improved Air India can win back even 20% of profits from other global airlines, it will be a huge boost to the bottom line.
It’s time to rebuild the service culture
Experts said that Air India also needs a charismatic and experienced leader like JRD Tata or Richard Branson to help rebuild the airline’s service culture.
Image consultant Dilip Cherian said that Tata’s experience in building India’s largest hotel chain with the Taj Hotel as its flag bearer can help improve staff and services. The company also owns the luxury car brand Jaguar as well as information technology companies, steel companies and other businesses.
“The hotel industry will greatly help them establish the right image. The Taj Mahal is very suitable for the early Indian aviation culture,” Cherian said.
Tata also owns a majority stake in Vistara, an advanced joint venture with Singapore Airlines and AirAsia India (AirAsia Group’s low-cost carrier). Tata benefited from the expertise of its partners, but neither company was profitable.
Analysts said that owning three airlines could put Tata in a good position in negotiations with aircraft manufacturers, engine manufacturers and lessors, as well as suppliers, airport operators and fuel companies.
Air India has approximately $2.1 billion in outstanding bills, and the government took over these bills before the airline sold to Tata.
Anuj Trivedi, a partner at the law firm Link Legal, said that the airline has a good reputation in the international market due to its tradition and that the company assisted Air India in completing the transaction.
“It will not be easy and there will be challenges, but with Tata, Air India is expected to take off again,” he said.
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