- Tata will have to restore the brand’s reputation for luxury – experts
- A significant financial investment will be necessary
- Tata reportedly needs more than $ 1 billion to renovate Air India’s fleet
NEW DELHI, October 19 (Reuters) – Tata Sons’ $ 2.4 billion purchase of debt-ridden state-owned Air India will give the conglomerate immediate access to valuable flight rights and slots landing gear that will help it regain market share from its foreign rivals.
But industry executives warn that any success will be a long and complicated process that could cost it over $ 1 billion and require solving a myriad of issues, including its worn out fleet, poor service and the absence of a charismatic leader.
Air India, with its mascot Maharajah, was once renowned for its lavishly decorated planes and stellar service backed by the airline’s founder, JRD Tata, India’s first commercial pilot.
But since the mid-2000s, his reputation has deteriorated as the financial problems worsened. He has flown wide-body planes with poor business class seats and has grounded some of his new Boeing 787 Dreamliner from Boeing Co (BA.N) for use as spare parts. Customers faced numerous delays and staff and suppliers were not always paid on time, executives said.
“If you don’t have newer or reliable planes, whatever you do, you’re going to have a problem,” said an aviation industry veteran who was not authorized to speak publicly about the matter.
The transfer of ownership from the government to Tata is expected to be completed by the end of the year. The company will then have until the summer of 2022, when an increase in post-COVID demand is expected, to resolve the issues, the person added, estimating it would cost more than $ 1 billion to refurbish Air India’s 141 planes and up to $ 300 million to retrain personnel. and improve operations and service.
Figures do not include the purchase or lease of new aircraft.
Tata and Air India declined to comment.
POINT TO POINT
Air India’s biggest competitive advantage is its ability to fly non-stop to destinations like the United States and Europe, where it enjoys lucrative landing rights. Foreign airlines such as Emirates and Etihad Airways can only compete with single-stop options.
Many industry experts predict that after the pandemic, nonstop flights will become even more popular, especially with lucrative business travelers.
“I am convinced that if a passenger has a choice, their preference is to fly point to point,” said Robert Martin, general manager of lessor BOC Aviation (2588.HK) at a CAPA Center for Aviation event this week. last.
Foreign carriers dominated international traffic to and from India before the start of the pandemic, with Air India holding a 19.3% share, including its low-cost branch Air India Express, in the last quarter of 2019 , according to government statistics.
If an improved Air India can recover even 20% from other global carriers, that would be a big boost to bottom lines, the industry official said.
TAJ SERVICE LEVELS
Air India also needs a charismatic and experienced leader like JRD Tata or Richard Branson to help rebuild a culture of service within the airline, experts said.
Tata’s experience in building India’s largest hotel chain, with Taj hotels as its flagship, could help with staff and service, said Dilip Cherian, image consultant. The company also owns the Jaguar luxury car brand as well as information technology companies, steel companies and other businesses.
âThe hotel companies will help them immensely in portraying the correct image. The Taj fits very well into the Air India culture genre of the early years,â Cherian said.
Tata also owns majority stakes in Vistara, a premium joint venture with Singapore Airlines (SIAL.SI) and AirAsia India, a low-cost carrier with AirAsia Group (AIRA.KL). Tata has benefited from the expertise of its partners, but neither company is profitable.
Having three airlines is likely to put Tata in a strong negotiating position with aircraft manufacturers, engine manufacturers and lessors, as well as with suppliers, airport operators and fuel companies, according to analysts.
Air India had around $ 2.1 billion in unpaid bills, which the government took over before the airline was sold to Tata.
The carrier enjoys goodwill in the international market because of its heritage, said Anuj Trivedi, a partner at law firm Link Legal, which assisted Air India on the deal.
“It will not be easy and there will be challenges, but with Tata the hope is that Air India will leave,” he said.
Reporting by Aditi Shah, editing by Jamie Freed and Gerry Doyle
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