InvestorQ : How do you see the impact of Tata Sons boost the capital of Air India by $4 billion?
ishika Banerjee made post

How do you see the impact of Tata Sons boost the capital of Air India by $4 billion?

4 weeks ago

Almost a year since Air India was taken over by Tata Sons for an enterprise valuation of $2.3 billion, it is now looking to boost the capital base to take the business to the next level. As part of the plan, Tata Sons will raise $4 billion to infuse as fresh capital into Air India. These funds would be applied to refinance some of the costly debt in the books of Air India. At this juncture, these funds are desperately required to refinance the expensive debt of the Air India group as well as to bankroll its restructuring and revamp plans.

The fund raising will be done through a mix of debt and equity and Tata Sons will start by hiring investment advisors for the entire process. Additionally, informal talks are also on with PE funds to take a stake. Debt funding is expected to be the low hanging fruit for the Tata group with its existing banking relationships and considering the deep pockets of Tata Sons. However, equity funding will be tricky since PE funds normally don’t invest in airline business and the participation of sovereign funds may raise security related issues.

For the Tatas, Air India is a fit into its larger aviation plans. They already have Vistara and Air Asia flying under their banner and now Air India has got added. Between the 3 players, the Tatas have a combined aviation market share of close to 25% in India. That is a good starting point to take on Indigo, which dominates the domestic skies with its 58.8% market share. Tatas also plan to order over 200 Neo Jets and widebody aircraft for Air India since the Air India market share in the last one year has fallen from 11.2% to 8.4%.