When Tata Sons chairman N Chandrasekaran said that they want to make Air India the flagship company earlier this year, he didn’t just make any random comment, instead, the group is acting on it. The over 150-year-old conglomerate through its subsidiary Talace, won the bid for the airline in October last year and took control of it in January this year.
Now, the Tatas are looking to raise working capital loans of about Rs 15,000 crore for Air India for the carrier’s revival. This amount will be used to cover Air India’s day-to-day air operations and losses, refurbishment of the fleet, payment of aircraft rentals and overhaul of IT operations, according to a person privy of the development.
The tenure of this Rs 15,000 loan will be three years, pegging it in the range of 7.5-8 per cent reset annually, another person in the know told Economic Times. Interest rates have gone up and liquidity in the system has dried up, which will affect the borrowing cost, said a bank official.
Last year, Talace, after winning Air India’s bid, raised Rs 23,000 crore of unsecured, unrated one-year loan from State Bank of India (SBI), HDFC Bank and Bank of Baroda, at 4.25 per cent, which will need to be renewed at end of January.
The Tata-owned airline’s accumulated losses at the end of March 2021 stood at Rs 83,916 crore and it lost another Rs 9,556.5 crore in FY22.
Air India revival
Since their acquisition of the airline from the government, the Tatas have been trying to address the issues ranging from poor customer service and archaic manual systems to old, inefficient aircraft.
Under the Tatas, Air India is also looking at expanding its fleet to triple it from 113 planes in the next five years. In view of this, the carrier last month agreed to lease five Boeing wide-bodies and 25 Airbus narrow-bodied planes for the next few years.
“Depending on the age of the plane, short-term lease rentals could be 15 per cent higher than a long-term lease,” said a former Air India executive. “But please note that Air India has leased the Boeing 777-200LRs, which are hardly in vogue these days. It would have got a reasonable rate.”
Tata executives discovered that they would need to need over $1 billion to refurbish Air India planes and get them ready to fly during the pre-purchase due diligence, shared consultants that were part of the process.
Tatas’ spends on Air India
The new owners of the airline are also spending on IT integration as they have formed six verticals to completely overhaul the airline’s back-end. It’s being spearheaded by Satya Ramaswamy, according to a person in the know.
Moreover, the group is understood to have given a new customer relationship management (CRM) contract to US-based Salesforce. CRM manages all of a company’s relationships and interactions with customers and potential customers.
A fresh contract for enterprise resource planning (ERP) has also been awarded to Germany’s SAP. An ERP software system can integrate multiple functions like planning, purchasing inventory, sales, marketing, finance and human resources.
“The ERP product is cloud-based. In simple terms, for the first time in Air India’s history, every penny that it earns and spends will now be digitised and easily accessible,” an insider told Economic Times.
Apart from these changes, Air India is rebuilding its core team, getting onboard seasoned executives from peer airlines. The airline is luring them with salaries up to 50 per cent higher than industry standards.
