The potential Air India-Tata deal gives hope for consolidation in the aviation sector

The sale of Air India Ltd is finally showing signs of taking off. Multiple expressions of interest have been received for the airline’s strategic divestment, the government said Monday. Although the identities of all bidders have not been disclosed, reports suggest the Tata group and a consortium involving Air India employees are among the suitors.

With the Tata Group having already established its presence in the aviation industry, there are some hopes of consolidation in the industry if it succeeds with its offering. Varun Ginodia, analyst at Ambit Capital Pvt. Ltd, said: “The probable acquisition of Air India by the Tata group is positive in the long term as it paves the way for consolidation.”

Cumulatively, Air India, AirAsia and Vistara hold a domestic market share of 22.9% in October, according to data from the Directorate General of Civil Aviation. This will easily make it the second largest player in the sector, after IndiGo, which enjoys a market share of 55.5%. Currently, SpiceJet is the second largest national airline with a 13.4% share.

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Stacked up

Ginodia added: “The Tatas could eventually have three wings: a low-cost carrier (merging Air India Express and AirAsia India), a full-service carrier (combining Vistara and Air India) and ground handling services. Of course, before that, the Tatas will have to simplify the complex structures with its partners in existing airlines. “Needless to say, this is the big if in the equation.

Vistara is a joint venture (JV) of Tata Sons Pvt. Ltd and Singapore Airlines Ltd (SIA), of which the former holds a 51% stake and SIA holds 49%. Reports suggest the latter is not thrilled to participate in the offer for Air India. Additionally, Tata Sons has a 51% stake in AirAsia India while AirAsia Berhad owns the rest. Unconfirmed reports said Tata’s offer would be made via AirAsia India. Overall, the Tata Group’s seemingly complex interests in the industry can make the process more challenging.

Also, as Mahantesh Sabarad, head of retail research, SBICAP Securities Ltd, said, “Mergers aren’t easy. Remember, Jet Airways ‘merger with Air Sahara and Kingfisher Airlines’ merger with Air Deccan were not successful. “

But all is not lost. Whether or not consolidation happens in the process, Air India could see a turnaround with Tata by its side. According to Sabarad, “If Tata acquires Air India, the country will have better control over international passenger traffic than the loss of foreign airline shares currently. The main thing to keep an eye on is the price the Tata Group will pay for Air India. In this case, the current recession could help keep valuations low. “

At the same time, the hope of consolidation and a potential improvement in the pricing environment can help the government get a decent offer as well.

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