Air India's Ambitious Turnaround: A Comprehensive Analysis of Tata Group's $2.4 Billion Investment
By Aditi Shah and Jamie Freed
Tata Group's $2.4 Billion Bet: Will Air India Soar to World-Class Status?
NEW DELHI/SYDNEY (Multibagger) - Two years after Tata Group acquired Air India in a $2.4 billion deal, the airline faces significant challenges. Re-kitting an ageing fleet amidst parts shortages and persistent flight delays stand as formidable obstacles in Air India’s quest to become a "world-class airline."
Global shortages are affecting airlines universally, but Air India’s CEO, Campbell Wilson, states that the issue is "more acute" for Air India. Despite being halfway through a five-year turnaround plan, the airline lags a generation behind competitors like Dubai’s Emirates and Qatar Airways.
"Our product is obviously a lot more dated. These aircraft haven't had a product refresh since they were delivered in 2010, 2011. And so it's more of an acute need for us," remarked Wilson in an interview in Sydney. "If we've got legacy seats and legacy in-flight entertainment systems, we're operating with one arm tied behind our back," he added.
The challenges are most severe at the premium end of the plane as Air India aims to attract high-spending travelers, noted Wilson, who previously served as an executive at Singapore Airlines.
In a bid to transform, Air India has placed substantial orders to upgrade its fleet. This month, the airline initiated a $400 million plan to refit older planes. The restructuring, following decades of neglect under state ownership, is under intense scrutiny by manufacturers, lessors, and investors, including Singapore Airlines, which will own a 25% stake in Air India from November and has pledged an additional investment of up to $600 million.
"Air India ... has a long way to go before being closer to international standards for which it needs to complete the process of re-kitting with new and retrofitted aircraft," commented Brendan Sobie, an independent aviation analyst based in Singapore.
The Critical Need for Premium Seats
Rebuilding Air India's reputation hinges on deploying planes with top-tier premium seats and services as quickly as possible to attract flyers currently hesitant to book with the carrier due to its dated product and risk of delays.
Among the 470 new planes ordered, 70 are widebody jets. The airline has already received six Airbus A350s and leased 11 Boeing 777s. It plans to refit approximately 67 planes, starting with 27 narrowbody ones, by mid-2025 to better compete with domestic rival IndiGo's more modern fleet.
However, the start of the 40 widebody refits, initially scheduled for this year, has been delayed to early 2025 due to issues in obtaining customized business and first-class seats. Seat manufacturers are grappling with a shortage of skilled labor and capacity, Wilson indicated.
Once the refit process begins, it will take about two years to elevate the widebody fleet to international standards, he added. Currently, older jets result in lower utilization, averaging about an hour less per day across Air India's fleet, with even more significant losses on long-haul routes to destinations like the U.S.
As an interim measure, Air India is safeguarding its most profitable long-haul routes, such as Mumbai to San Francisco and Delhi to London, by guaranteeing modern planes.
For the fiscal year ending in March, Air India increased its capacity by 21% year-over-year and improved passenger load factors, reducing net losses by 60% to $532 million and growing revenues by 24.5% to $6.15 billion. "When we can command the prices the product deserves and people have a good view of the reliability and service proposition, we can fly to more high-yield routes and bring back the high-yield customer," Wilson said. He did not specify a target date for reaching profitability.
"Stabilize the Ship"
Founded in 1932 by Tata Group’s late chairman JRD Tata, Air India was once among the world’s premier airlines. However, nationalization in 1953 led to a prolonged decline, primarily due to a lack of investment.
When Tata regained control in 2022, the airline's systems were outdated, offices scattered, and 30 aircraft were grounded due to the lack of spare parts. "It was just in absolute shambles. We've had to really spend the first six months to stabilize the ship," Wilson stated.
By October 1, Air India will have completed the merger of its low-cost carriers Air India Express and AirAsia India, and by November 12, it will incorporate Vistara, currently jointly owned by Tata and Singapore Airlines.
Flight delays remain an issue, with only 18% of Air India's flights to Europe and 48% to North America arriving within 15 minutes of the scheduled time in August, according to aviation data provider Cirium. A shift to Air India's own maintenance and repair facility, being developed with help from Singapore Airlines subsidiary SIA Engineering, should help reduce maintenance-related delays. The facility will be ready by 2026, but Air India is contractually obligated to use government-owned Air India Engineering Services Ltd until the end of 2024.
"Two years in, I think we're in a good place," Wilson concluded.
Analysis: How This Affects You
For the everyday person, understanding Air India's turnaround efforts is crucial for several reasons:
- Better Travel Experience: Air India's focus on upgrading its fleet and services means higher comfort and reliability for travelers, especially those flying long-haul.
- Economic Impact: Air India's revival can significantly boost the Indian economy by increasing tourism and creating jobs within the aviation sector.
- Investor Insight: For investors, the involvement of Singapore Airlines and the substantial investments indicate potential growth and returns in the long-term.
- Competitive Market: A revitalized Air India can offer more competitive pricing and options in the international travel market, benefiting consumers with more choices.
In summary, Tata Group's ambitious plan to transform Air India is a monumental task with far-reaching implications. It promises improved travel experiences, economic benefits, and investment opportunities, though the journey is fraught with challenges.