Sunday , August 1 2021

Tats gambling in the bloodstained flight market

g_110741_aviation - 796928908_280x210.jpgImage: Shutterstock

In December 2012, as chairman of Tata Sons came out, industrialist Ratan Tata, who took care of the dream of operating an airline and even an airport in Bengaluru, appeared to have given up on his plan. "I t [the aviation sector] rather like telecommunications. This is often found by many operators, some of whom are in financial trouble, " Press Indian Trust quoted by Tata said. "I would hesitate to enter the sector today in the sense that you will most likely have a lot of competition that will become unfair competition."

Uncle Tata, JRD Tata, had founded Tata Airlines in 1932; now Air India, an entity owned by the Indian government.


Six months after the statement, Tata Sons, the parent company of the Tata group of more than 100 billion dollars, entered the sky of India with two joint venture partnerships at AirAsia India, with cheap airlines Malaysia AirAsia, and Vistara, which bind with Singapore operator Singapore flag Airlines.

Ironically, in the last six years, nothing has changed with regard to the state of the Indian aviation sector, especially the way Ratan Tata saw it, as well as the uncontrolled interest of the Tata Sons in space.

According to media reports, Tata Sons is in talks to acquire a full-fledged full-service airline Jet Airways. "We do not comment on market speculation," a Tata Sons spokesman told Forbes India. Jet Airways has notified Indian exchanges that the news is "speculative". And if there is an agreement, there may be some time; it can even fall at any stage of negotiation.

At present, the competition is very tight and the airline industry is experiencing red bleeding – a combined loss of IndiGo, Jet Airways and SpiceJet, which together control 70 percent of the market, in the July to September quarter of FY19 total of ₹ 2,300 crore. Unlike the other two airlines, Jet Airways reported losses for the third consecutive quarter; Cumulative losses since March 2018 are more than ₹ 3,650 crore.

More than 50 percent of the surge in fuel costs combined with the depreciation of the rupee and low air fares hurt the fate of Indian airlines. Although air travelers do not complain, because there has been a 20 percent growth in domestic traffic.

Jet Airways is the second largest airline with a market share of 15.3 percent and, more importantly, more than 50 percent of its revenue comes from international flights. "Jet Airways, with all its international flying rights, is an established airline. This will complement the portfolio for Tatas who are interested in flight [since the 1930s], "Said independent research analyst Sanjay Jain.

Tata Sons has become a significant minority shareholder (initially holding a 30 percent stake which increased to 49 percent in AirAsia India) or a majority shareholder (51 percent in the Vistara case), but not the actual operator of the airline.


Given the large customers of the Tata group are connected, the Tata brand, said Jain, "enjoys a lot of public trust". "Aviation is a B2C business (business-to-consumer) and Tatas really understands that," he pointed out.

But will it understand the mind of a brawling market leader like IndiGo? For one, IndiGo does not seem to be burdened by prevailing market conditions. Although fuel prices are responsible for more than half of the decline in profits, IndiGo added five new destinations and 35 new routes in the period from July to September. Its management has announced a capacity increase of 35 percent further in October to the December quarter. Reason: It has more than 13,000 crore in cash reserves.

"Flights need deep pockets to resist fuel price irregularities. In Tatas, you get long-term flight investors, are committed in, who always lack the country, "Jain said. One can argue that Indian taxpayers have become the most committed long-term airline investor by keeping Air India, which has debts of IDR 48,000 crore, floating for years.

Indeed, there will be questions about the commitment of the Capital Administration to the aviation sector as the Tata group, which consists of more than 100 companies, will go through the current churn portfolio. In fact, they may need to take over their existing flight joint venture – AirAsia India does not make a significant dent in the Indian market.

If Tata Sons finally buys Jet Airways, the possibility of a merger between Vistara and Jet Airways can be done on the card. Both are full-service airlines and international routes Jet Airways will provide Vistara quick access to major markets in Europe and West Asia. Also, the Jet Airways domestic route network will increase Vistara's presence in the main metro market.

In addition, history shows that airlines merging in India, whether it is Air India and Indian Airlines, Jet Airways and Air Sahara, or Kingfisher Airlines and Deccan Air, have been disastrous. "Much has happened to Jet Airways [its financial troubles] because it hasn't managed to close [Air] Sahara Merger, ”Ajay Awtaney, editor,, a business travel website, told Forbes India in a previous interview.

That said, Tata Sons bought Jet Airways, said Jain, would be good for Tatas and owner of Jet Airways. "And I think more than that, it will be good for the aviation industry, because Tatas represents a long-term commitment."

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