Tata at Crossroads as Fledgling Airlines Reach Critical Juncture

Ratan Tata is no stranger to flying. As a 17-year-old, the octogenarian 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 a investment advisory firm focused 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, has often been identified by local media as the most likely suitor. Prime Minister Narendra Modi’s administration has repeatedly sweetened the terms to woo buyers; 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.”

But what sets the Tata Group apart is its seemingly single-minded devotion toward 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.