India has been trying unsuccessfully to sell its unprofitable
national airline for years.
Ratan
Tata is no stranger to flying. As a 17-year-old, the octogenarian patriarch
of India’s biggest conglomerate once landed a plane that had lost its sole
engine mid-flight; he’s also piloted the supersonic F-16 fighter jet.
That love of
aviation hasn’t always translated into business success, however. Tata Group’s
two airlines -- AirAsia
India and Vistara -- were struggling before the coronavirus pandemic.
Covid-19 has put the sprawling Tata Sons Ltd., which owns a 51% stake in each,
at a crossroads. Either go big, by buying state-run Air India Ltd. for example,
or bow out before spilling more red ink.
The Tatas “are
caught between a rock and a hard place,” said Mukund Rajan, a former member of
the group’s executive council who’s now the chairman of a investment advisory
firm focused on environment, social and governance issues. “The only option to
run a successful airline is to seek scale. This would require the Tatas to
deploy significantly more capital than they have done thus far. Absent ambition
and scale, the prospects for success are probably very remote.”
India has been
trying unsuccessfully to sell its unprofitable national airline for years. Tata
Group, although aviation only accounts for a small share of its total revenue,
has often been identified by local media as the most likely suitor. Prime
Minister Narendra Modi’s administration has repeatedly sweetened the terms to
woo buyers; Tata Group, which was previously evaluating the proposal, hasn’t
said whether it will bid.
Tata’s airline
predicament isn’t unique. Warren Buffett exited his positions in all airline
stocks earlier this year saying the pandemic may have fundamentally changed the
business. And Richard Branson once famously said, “If you want to be a
millionaire, start with a billion dollars and launch a new airline.”
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