Tata Sons Ltd, the holding company of the Tata group, plans to raise USD 4 billion to infuse fresh capital into Air India and refinance costly debt, according to a report by Mint, citing two people directly aware of the matter.
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, the people told Mint, requesting anonymity. Tata Sons acquired the airlines in October last year at an enterprise value of USD 2.3 billion from the government.
“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 told Mint.
“The debt refinancing portion will be relatively easier as lenders within Tata’s existing banking relationships will step in,” the second person told Mint. “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,” the person added.
Spokespeople for Tata Sons did not respond to an emailed query by Mint on the fundraising plan.
Last month, another report stated that Tata Sons will likely make a provision for INR 2,600 crore as accumulated losses for AirAsia India airlines.
CCI in June this year approved Tata Group-owned Air India’s proposal to fully acquire the equity share capital of low-cost carrier AirAsia India. Tata Sons, which majorly owns AirAsia India with a shareholding of 83.67% and AirAsia Investment Limited controls the rest of the stake in the budget carrier.
Reportedly, 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 the Directorate General of Civil Aviation (DGCA). Go First and SpiceJet’s market share stood at 8.2% and 8%, respectively.
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.
“The fund infusion is crucial for Air India’s operational efficiency to regain market share. The fund will be used to bring in new aircraft and offer differentiated customer service initiatives, which will attract passengers,” said the first person.
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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.
As part of its fleet enlargement plan, Air India has determined to permit its pilots to fly until they’re 65. The determination was made public on July 29. DGCA permits pilots to fly until the age of 65, whereas the retirement age at Air India as a public sector firm was 58 years.
(With Inputs from Mint)