Potential Air India-Tata deal raises hopes for consolidation in aviation

The sale of Air India Ltd is finally showing signs of a take-off. The government announced on Monday that several expressions of interest had been received for the airline’s strategic disinvestment. Although the identities of all bidders have not been disclosed, news suggests that the Tata Group and a consortium that includes Air India employees are among the bidders.

With the Tata Group already established in the aviation industry, there is some hope for industry consolidation if it is successful with its offering. Varun Ginodia, Analyst at Ambit Capital Pvt. Ltd said: “The Tata Group’s likely acquisition of Air India is positive in the long run as it paves the way for consolidation.”

According to the General Directorate for Civil Aviation, Air India, AirAsia and Vistara had a cumulative domestic market share of 22.9% in October. This makes it the second largest provider in the industry after IndiGo with a market share of 55.5%. Currently, SpiceJet is the second largest domestic airline with a share of 13.4%.

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Ginodia added, “The tatas may have three wings: a low-cost airline (by merging Air India Express and AirAsia India), a full-service airline (by merging Vistara and Air India) and groundhandling services. Before that, of course, the Tatas have to simplify the complex structures with their partners in their existing airlines. “That is of course the big problem.

Vistara is a Joint Venture (JV) of Tata Sons Pvt. Ltd and Singapore Airlines Ltd (SIA), with the former holding 51% and SIA 49%. According to reports, the latter is not interested in joining the offer for Air India. In addition, Tata Sons has a 51% stake in AirAsia India, while AirAsia Berhad owns the rest. Unconfirmed reports indicate that Tata’s offer was submitted through AirAsia India. Overall, the Tata Group’s seemingly complex interests in this sector can make the process more difficult.

In addition, SBICAP Securities Ltd, director of retail research at Mahantesh Sabarad said, “Mergers are not easy. Remember that the merger of Jet Airways with Air Sahara and the merger of Kingfisher Airlines with Air Deccan were extremely unsuccessful. “

But all is not lost. Regardless of whether there is consolidation or not, Air India could see a turnaround with Tata by its side. Sabarad: “If Tata acquires Air India, the country will have better control over international passenger traffic than it would over losing stakes in foreign airlines. The main thing to consider is the price that the Tata group will pay for Air India. Here, the current downturn could help keep valuations down. “

At the same time, hopes for consolidation and a possible improvement in the pricing environment can help the government get a decent deal.

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