$113 billion Tata empire faces tough decisions over airlines

Bloomberg

Ratan Tata is no stranger to flying. As a 17-year-old, the patriarch of India’s biggest conglomerate once landed a plane that had lost its sole engine mid-flight. He’s also piloted the supersonic F-16 fighter jet.
That love of aviation hasn’t always translated into business success, however. Tata Group’s two airlines — AirAsia India and Vistara — were struggling before the coronavirus pandemic. Covid-19 has put the sprawling Tata Sons Ltd, which owns a 51% stake in each, at a crossroads. Either go big, by buying state-run Air India Ltd, for example, or bow out before spilling more red ink.
The Tatas “are caught between a rock and a hard place,” said Mukund Rajan, a former member of the group’s executive council who’s now the chairman of an investment advisory firm focussed on environment, social and governance issues. “The only option to run a successful airline is to seek scale. This would require the Tatas to deploy significantly more capital than they have done thus far. Absent ambition and scale, the prospects for success are probably very remote.”
India has been trying unsuccessfully to sell its unprofitable national airline for years. Tata Group, although aviation only accounts for a small share of its total revenue, is often pinpointed by local media as the most likely suitor. PM Narendra Modi’s administration has repeatedly sweetened the terms to woo buyers, but Tata Group, which was previously evaluating the proposal, hasn’t said whether it will bid.
Tata’s airline predicament isn’t unique. Warren Buffett exited his positions in all airline stocks earlier this year saying the pandemic may have fundamentally changed the business. And Richard Branson once famously said, “If you want to be a millionaire, start with a billion dollars and launch a new airline.”

First Pilot
But what sets the Tata Group apart is its seemingly single-minded devotion towards making an airline work at any cost. Vistara and AirAsia India have never made money and have lost around $845 million combined through March this year, according to estimates from the CAPA Centre for Aviation.
For the $113 billion Tata Group, it’s also a question of holding onto a rich heritage. Ratan Tata’s predecessor, the legendary industrialist and philanthropist JRD Tata, was India’s first licensed pilot and started Tata Airlines in 1932 as the nation’s first carrier, flying mail
between Karachi in then-undivided, British-ruled India and Bombay.
When India began to allow private airlines in the early 1990s, Tata’s interest was piqued again. In 1994, the group came up with an ambitious plan to start an airline with 100 planes in partnership with Singapore Airlines, but the government refused to allow a foreign entrant and project was quashed. In 2000, Tata again teamed up with Singapore Air to bid for a stake in Air India when the then-government sought to sell shares in the state-owned carrier. The plan was later dropped because of political opposition.
Vistara pitched itself at the other end of the spectrum — a carrier with a business-class cabin on all planes offering to fly rich Indian businessmen to London and New York.