Tata's Air India Deal: What we Should Care About

Why did the Tatas buy Air India (AI) for ₹18,000 crores? Since the Tatas used to own the brand in pre-independence times, before Nehru forcibly nationalized it, there were several jokes on the Net:

“As news of the Tatas taking over Air India spread, snappy jokes about ghar wapasi, “airlooms” and “Tata does not always mean goodbye’’ flooded social media.”

 

Jokes aside, I couldn’t find any article on the Net that explained what the Tatas might have in mind. But one of those articles made me realize I was missing another equally important question wrt this sale… for which there is an answer.

 

But first, let’s look at state of AI. It includes the erstwhile Indian Airlines under itself since 2007. And it’s been bleeding money for a long time. At the rate of ₹20 crores per day. That’s ₹7,300 crores per year. Were the Tatas arm-twisted into buying such a loss-making entity with huge loans to boot (over ₹61,000 crores)?

 

Look closer at the numbers, and you’ll notice the amount the Tatas are paying (₹18,000 crores) is less than the loans owed by AI (over ₹61,000 crores). So what’s going on? It turns out the Tatas are paying only 15% of the sale amount as cash to the government, i.e., ₹2,700 crores. The rest (₹18,000 crores minus ₹2,700 crores = ₹15,300 crores) is basically a transfer of part of the loans of AI onto the Tatas. Which leaves the government still left with the rest of the loans of AI (₹61,000 crores minus ₹15,300 crores = ₹45,700 crores).

 

Let’s summarize. The Tatas are getting 100% ownership of AI (yes, that means zero government stake, which means zero interference when the hard decisions are made e.g. layoffs, or getting off certain routes etc), and the government is still left with most of the existing loans of AI. So it doesn’t sound like a completely crazy deal for the Tatas. The Tatas’ holding company can be expected to use the largest cash cow in its portfolio (TCS) to infuse cash into AI, so maybe that’s the plan. Or perhaps the Tatas feel they were getting to buy at a cheap price thanks to COVID-19, and thus consider this a good long-term bet? Who can tell?

 

Now let’s get back to the question for which I did find an answer. We might be curious as to why Tatas bought AI. But perhaps we should be flipping that question on its head. If AI is bleeding so much money, and the loans owed are only getting bigger every day that AI operates, then the government’s debt column is increasing every day, right? But when we say the government owes money, it really means we tax payers owe more money, as Andy Mukherjee points out. So perhaps we the tax paying citizens should be happy with the fact that by selling all of AI, the government’s loan amount won’t continue to rise by ₹20 crores every day:

“Indian taxpayers ought to be relieved to have cut their losses.”

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