Tata Sons Ltd, the holding company of the Tata group, plans to raise as much as $4 billion to infuse fresh capital into Air India and refinance costly debt, two people directly aware of the matter said.
Tata plans to raise funds through a mix of equity and hybrid debt to refinance a part of Air India’s debt and revamp the airline, which it acquired in October last year at an enterprise value of $2.3 billion from the government, the people said, requesting anonymity.
“The Tata group will soon start the process of hiring investment advisers, although informal discussions with a few foreign lenders and some private equity funds are already underway,” one of the people said.
“The debt refinancing portion will be relatively easier as lenders within Tata’s existing banking relationships will step in,” the second person said. “The equity component of the transaction may take a bit longer given that globally, the number of private equity funds that invest in airline business are relatively few”.
Spokespeople for Tata Sons did not respond to an emailed query on the fundraising plan sent on Friday.
According to the latest figures, Air India’s domestic market share shrank to 10.2% in January 2021, just after Tata Sons completed the acquisition, from 11.6% in January 2020. In July, Air India’s market share further shrank to 8.4%, while market shares of Vistara and AirAsia India, the Tata group’s other two airlines, stood at 10.4% and 4.6%, respectively, according to data compiled by the Directorate General of Civil Aviation (DGCA). Rivals Go First and SpiceJet’s market share stood at 8.2% and 8%, respectively.
“The fund infusion is crucial for Air India’s operational efficiency to regain market share,” said the first person. “The fund will be used to bring in new aircraft and offer differentiated customer service initiatives, which will attract passengers,” said the first person.
Tata is undertaking an overhaul and expansion of Air India and its unit Air India Express, according to the two people, and is about to close orders for around 200 narrow-body A320 Neo jets and widebody aircraft. These are likely to be delivered by the beginning of next fiscal.
In July, IndiGo, India’s largest carrier, had a domestic market share of 58.8% as against 56.9% in June. Vistara flew 1.01 million passengers, and Air India flew 810,000 passengers in July.
As a part of its fleet expansion plan, Air India has decided to allow its pilots to fly till they are 65. The decision was made public on 29 July. DGCA allows pilots to fly till the age of 65, while the retirement age at Air India as a public sector company was 58 years.
