M&A Case: Air India

Submitted By:
Group 1
Section B
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 Air India: Introduction
Started in 1932 as Tata Airlines. Founded by JRD Tata, it took off as a flying mail between Karachi and Bombay

In 1953, the Government of India passed the Air Corporations Act and purchased a majority stake in the carrier from
Tata Sons

As India liberalized the economy in 1991, private competition started coming in. An eroding market share coupled
with the merger with Indian Airlines fueled the decline in Air India’s fortunes

In 2012, the government bailed out the ailing carrier with 300 billion rupees in funds, guaranteeing the carrier’s loans
and promising interest payment on some debt, however, its need for working capital exceeds the dole

Currently, there’s about $8 billion in debt, a money-losing airline operation, five subsidiary companies and a joint venture, a
combined workforce of 27,000 and unions with a history of grounding the airline over work demands

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Reasons
Escalating costs of
ATF
Leadership crisis due to
frequent change of MD
Air India could not fully
use the bilateral rights
Declining passenger traffic
in the premium class
Volume Discounts in
areas such as fuel
purchase, insurance
Economies of scale in areas
such as maintenance,
ground operations
Hub and spoke system
which could be achieved
by the merger of the
international and
domestic airlines
Post Merger
Merger: Air 1
Problems
Incomplete integration of
1
India and official positions, of IT
systems and as well as
2
Indian infrastructure due to
different aircraft flown by
3 Airlines 2
the two companies
Decline of customer
4 (2007) service
Decreased passenger
3
traffic during recession
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Unnecessary and costly
4 acquisition of aircraft
6 fleet
Increased competition from
5
domestic airlines as well as
7 international airlines due
to unfavourable
government policies
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 Performance Parameters
• Huge Losses since 2007 which are being
covered through short term and long term
debts ultimately coting tax payers money

• The only time it posted an operating profit was

in 2016 due to slimp in the oil prices, however,
a net loss of 38.4 billion rupees was still there
as per GOI

• Continuous decline in market share since 1995

• Gulf airlines have eaten into the market share

of Air India

• Air India currently spending 6000 Crore

annually on just paying for the loans
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 Buying AIR INDIA
Pros
• Overseas routes and landing rights
• Expert and skilled workforce
• In-house engineering and ground
clearing services
• Goodwill

Cons
• $8 Billion debt
• Restive unions with history of stalling
work
• Unutilized assets like land/real estate
• Diseconomies of scale
• Bureaucratic mess
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 Option 1 Option 2
Freehand to Government taking over Debt of Air
restructure India

• The power to completely restructure

should be given to the buyer
• This will mean lot of firing and hiring
• Government should relinquish
control on operations of Airlines
• Government will need to convince If Government can take over 76% of Debt,
labor unions before asking for offers Air India will make zero profit and will be a
better prospect for potential buyers

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 Option 3
Special privileges for 5
years to sweeten the deal
• Tax Benefits can be offered to the
buyer
• Subsidized Fuel for buyer
• VRS to be offered by Government
Option 4
Give more time to improve financials
• As we can see that performance is
improving so more time could be
given to improve profitability and
then make the sale
• Avoid extra expenses like expanding
fleet
• Freeze hiring
• Utilize current assets to increase
market share and reduce operating
costs through reducing ground time
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THANKYOU
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Exhibit 1. Air India P&L Statement

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Exhibit 2: Air India Balance Sheet
(Liabilities)

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