Air India turnaround to cost Tatas over $5 billion, say industry experts

The Tata Group is making a bet of over $5 billion, or about Rs 37,500 crore, over the next five years on Air India to turn around the national carrier, industry experts said. The amount, one of them estimated, covers the Rs 15,000 crore of debt that the group has taken over and losses it will have to fund. However, it doesn't include asset-backed costs like plane refurbishment which will be higher, the person said.

To make the business profitable, the automobile-to-aviation conglomerate should have a single airline entity instead of three, increase ticket prices by at least 15%, rationalise capacity by chopping off loss-making routes, get rid of the Boeing 777 planes in their current configuration, and concentrate on the international product, experts said.

Reworking onerous engineering contracts and rationalising workforce will be a huge challenge, they added.

Tata Sons formally took over Air India on Thursday, 69 years after the government nationalised and took control of the airline from its original founder JRD Tata in August 1953.

"Tatas have the capability to fix it. In fact all three airlines - Air India, Vistara and AirAsia India - are very fixable," said a board member at one of the largest low-fare carriers in the world. "Chandra (Tata Sons chairman N Chandrasekaran) will either have egg on his face or he will have a crown on his head," he added.

Air India's accumulated losses at the end of March stood at Rs 83,916 crore. AirAsia India's FY21 loss came in at Rs 1,532 crore and Vistara's was Rs 1,612 crore.

The largest expenses, aside of funding losses as well as debt, will be on plane refurbishment, the experts said.

"The low hanging fruits are on-time performance and at least part of the fleet refurbishment," said Dinesh Keskar, former head of sales in Asia Pacific and India at Boeing. "Rationalising the workforce, especially given the one-year contract that they can't be touched for a year, is a much bigger challenge," he said.

In terms of aircraft value, Air India is Boeing's biggest customer in India.

Air India has 12,085 employees on its books. Tata Group will have to retain all of them for a year. If they are retrenched after that, it has to be through a voluntary retirement scheme.

"They have to get a very good CEO from the global aviation market," said an industry expert who requested not to be identified. "He should stay for 4-5 years, fix its problems and move on."

The government has paid off most of Air India's lessors and suppliers. It has ended onerous contracts such as the sale and leaseback agreement on 21 Boeing 787 Dreamliner planes, and paid the rentals throughout the tenure so that Air India now owns them.

One of the industry executives said the Tatas should do away with the Boeing 777s because their configuration is not up to global standards. "For making a global product, the airline needs to have wide-bodied planes configured to global standards," he said.

Reconfiguring existing aircraft by ripping out the galleys and lavatories, etc. will be very expensive, he said.