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Tata to Air India and Back: Analysing the Disinvestment Process

[Medha Nagpal and Anushka Agarwal are 5th-year students at Jindal Global Law University, Sonipat]

The quest to privatize Air India has come to an end with its takeover by Talace Private Limited, a wholly-owned subsidiary of Tata Sons (“Talace”) after years of unsuccessful attempts. The third and final attempt to disinvest the national carrier airline was completed with the sale of 100% equity shares of Air India and Air India Express in addition to a 50% stake in Air India and Singapore airport terminal services (“AISATS”) on 27 January 2022. Out of the total debt of INR 61,560 crore attached to the loss-making airline, Talace will take over the amount of INR 15,300 crore while the rest will be allocated to Air India Assets Holding Ltd. (“AIAHL”), a special purpose vehicle created as per the disinvestment plan.

This article aims to briefly discuss the umpteen number of unsuccessful efforts made by the government while analysing potential implications of this acquisition by Talace on the aviation industry, as well as taxpayers, amongst other stakeholders.


The first effort to sell stakes in the airline began in 2001 when the NDA led cabinet aimed to sell 60% of its shares due to losses driven by competing low-cost carriers and poor hospitality. This attempt, however, was not a success and had to be withdrawn within two years. As per the 2013 report by the Centre for Aviation, the airline suffered from “low productivity, high costs, poor staff morale, significant unresolved human resource issues and an unviable business model” making it more pertinent than ever, to privatize.

The second initiative to divest that took place in the year 2017-18 also failed due to the government’s proposal to retain a minority stake of 26%, while at the same time requiring the acquirer to take charge of a larger portion of the carrier’s debts. This combination of partial control and high debts did not bode well with the prospective bidders looking to make substantial changes in the working of the airline while towards profitability in a highly competitive market.

The latest attempt which involves Talace has been predicted to be a successful one for various reasons, one of which being that the government has completely parted away with the control in the airline and has given the acquirer the flexibility to decide the level of debt they wish to take along with the airline.

Understanding the nuances and impact of the disinvestment process

With the successful completion of the disinvestment, the new owners will have to adhere to the new directions provided on Foreign Direct Investment, according to which, the stake of foreign investments (including that of foreign airlines) in Air India has been capped at 49%, via direct or indirect means. However, Non-Resident Indians who are Indian Nationals are allowed foreign investments under automatic route up to 100% stake as opposed to the 49% earlier. This exception was carved out to make the disinvestment process more attractive than its previous attempts. A press note by the Department for Promotion of Industry and Internal Trade has categorically stated that the “substantial ownership and effective control of M/s Air India Ltd. shall continue to be vested in Indian Nationals as stipulated in Aircraft Rules, 1937” which is to mean that while foreign investments are welcome, however, the airline can never be subsumed into a foreign entity.

It can be argued that the handover of the loss-making airline to the Tatas who have prior airline management experience is a step in the right direction. At the end of March 2021, Air India’s accumulated losses stood at INR 83,916 crores, an amount which could have been invested in welfare and other economy boosting activities. With the prompt sale of the airline to Talace, further bleeding of taxpayer’s money is being prevented by the government which had been spending INR 20 crore daily to keep it afloat. The takeover, in its essence, highlights the faith reposed by the government in the private sector in addition to furthering the disinvestment goals highlighted in the 2021 budget. Disinvestment of the national carrier had become necessary due to the rate of return on the employed capital was running in negative numbers for years now. Further, in 2020-21, the nation’s widening fiscal deficit standing at 9.5% of the Gross Domestic Product can be financed by disinvestment of such public sector undertakings.

In terms of benefits to the Tata Group, the transaction can add value to the company by providing lucrative flying routes which are not accessible to most competitors. It provides them with a push to be a substantial player as the airline offers its bilateral flying rights, hangars and trained personnel allowing the Tatas to undertake operations immediately. The merger of Air Asia with Air India Express would increase their market share to 27% which makes it the second largest in the domestic sector after Indigo which holds a market share of 52%. However, as one may assume scrutiny from the Competition Commission of India (“CCI”), the anti-monopoly watchdog has approved the acquisition. The CCI seems to have given approval as this acquisition does not have an appreciable adverse effect on competition. Furthermore, CCI usually adopts the point of origin/point of destination approach, similarly done in the Jet- Etihad acquisition, to examine airline mergers. In such instances, every combination of point of origin and point of destination is seen as a separate relevant market for the customer. If the CCI were to find competition concerns, it can impose a set of remedies.

Though providing formidable benefits, the road ahead for the Tatas is fraught with challenges with many trying to quash this acquisition. Recently, a Public Interest Litigation (“PIL”) was filed by Member of Parliament, namely, Subramanian Swamy, seeking to quash the Air India disinvestment process on the grounds that the bidding process was “arbitrary, corrupt, against public interest and rigged in favor of Tata Group.” Swamy’s contention stated that there existed only one bidder since the second bidder consisted of a consortium headed by the chairman of SpiceJet, the company which had ongoing insolvency proceedings against it. The court dismissed the plea and did not accept the contention that the bidding process was tailor-made plan to aid Talace in its acquisition of Air India by allowing the bid involving SpiceJet as there was no reliance on SpiceJet’s net worth to meet the criteria of financial capability.

While the court may have dismissed this case, it does not mean that the newly divested airline is free of hurdles. With the concerns of the employees regarding wage uncertainties and employment security, the Tatas have a long road ahead before commercializing and capitalizing Air India’s capabilities.


High political interference, bureaucracy and a lack of commitment by the professionals of Air India had led to a demise of the carrier’s public perception. With the private carrier’s expanding their fleets, there is a dire need for Air India to cope with intense competition making disinvestment an inevitable move. The government has endeavored to make this acquisition a beneficial one not only for the taxpayers and public but also for the new owners. By settling a large amount of debt via AIAHL, the government is providing an almost clean slate to the new owners, thereby allowing them to focus on rebuilding the legacy airline. Moreover, with this, the Department of Public Enterprises being brought under the Finance Ministry, and the National Monetary Pipeline, there seems to have fostered confidence in investors, in PSUs, indicating to economic growth.

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