Tata Sons to raise US$4 billion to infuse fresh capital into Air India

New Delhi, India (Urban Transport News): Tata Sons Ltd is planning to raise US$4 billion to infuse fresh capital into Air India and refinance costly debt, according to two people directly aware of the matter, reported the Mint. The company is planning to raise funds through a mix of equity and hybrid debt to refinance a part of Air India’s debt and revamp the airline.

Last year in October, Tata Sons acquired Air India from the Central Government at an enterprise value of US$2.3 billion.

The Tata Sons 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, said sources.

“The debt refinancing portion will be relatively easier as lenders within Tata’s existing banking relationships will step in. 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," said sources.

However, another report stated that Tata Sons will likely make a provision for Rs 2,600 crore as accumulated losses for AirAsia Airlines. The Competition Commission of India (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 percent and AirAsia Investment Limited controls the rest of the stake in the budget carrier.

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). The other airlines, 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. The fund will be used to bring in new aircraft and offer differentiated customer service initiatives, which will attract passengers," said sources.

Tata is undertaking an overhaul and expansion of Air India and its unit Air India Express 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 year.