The Tata Group is eyeing more capital infusion for Air India in the form of loans as they look to run the airline efficiently and iron out its issues. The airline’s new owners have ambitious plans for the next five years, which includes fleet and network development, digitization of various processes, and aircraft refurbishment, among others. The new loans will be on top of the billions the Tata Group raised for Air India’s purchase last year.
The Tata Group is reportedly speaking with banks to raise around $1.8 billion in working capital loans for Air India, to be used for its turnaround strategy. A person familiar with the matter told the Economic Times (ET) that the money would go towards daily operations, aircraft rentals, and refurbishment, among other things.
Air India is in the process of receiving a massive makeover. The airline had been neglected as a state carrier and amassed billions in debt over the years. In the financial year 2022 alone, it lost around $1.1 billion.
The Tatas had taken advice from consultants before buying the airline, and it was estimated that they would need more than $1 billion to refurbish the aircraft. Some sources reveal that those expenses have gone up since then. Some believe that given the current trends, the Tatas may secure the loans for a tenure of three years at a rate of around 7.5 to 8%.
The Tatas had established a new subsidiary to handle the Air India deal, known as Talace, which took unsecured loans for more than $3 billion from various banks for a period of one year. That sum is approaching renewal at the end of January next year.
The bulk of that loan (around $2.36 billion) was used to fund the purchase of Air India, and the remaining was set aside for the carrier’s operational costs.
But taming a beast like Air India was never going to be cheap, and the Tatas are aware that they need more funding to go ahead with their ambitious plans.
Air India’s CEO Campbell Wilson has said they want to create an airline brand that competes with other global carriers of repute, such as Qatar Airways, Emirates, and Singapore Airlines. In order to give consistent quality, the new owners need to invest in several things, including new aircraft, technology, and customer experience.
The new management has already gone ahead with some of those plans, such as leasing planes in the short term, even though such arrangements can be expensive. A former AI executive told ET,
“Depending on the age of the plane, short-term lease rentals could be 15% higher than a long-term lease. 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.”
The airline is also hiring employees across departments and recently attracted more than 73,000 applications in two months for cockpit and cabin crew roles. The Tatas are also not shying away from onboarding skilled executives from within the industry, even if it means offering them impressive salary hikes.
The carrier is also investing in technology and has signed contracts with US and German-based companies to efficiently manage various aspects of running the business, including customer interaction and relationship and integration of functions such as planning, purchasing inventory, sales, and marketing.
While these changes won’t happen overnight, given the scale of the improvement needed, the hope is that passengers will start noticing marked differences in Air India’s product in the next year or two.
What do you think of the Tata Group’s strategy regarding Air India? Please leave a comment below.
Source: The Economic Times
- IATA/ICAO Code:
- Airline Type:
- Full Service Carrier
- Delhi Indira Gandhi International Airport
- Year Founded:
- Star Alliance
- Campbell Wilson