Tata aviation sector deal ‘perplexing’

In one of the few interviews given before his departure as head of India’s Tata group last year, Ratan Tata played down the chances that his company would re-enter the sector it created when it launched India’s first airline more than 80 years ago.

But after Wednesday’s announcement that India’s largest business house by revenues is to take a 30 per cent stake in AirAsia’s new Indian budget airline, the Tata group has done just that. The deal was an unexpected first move for Mr Tata’s successor Cyrus Mistry and has puzzled some close observers of the group.

It was not in doubt that airlines remained unfinished business for India’s largest business house by revenue, after the group’s pioneering Tata Airlines was nationalised to become Air India after the second world war, and following its failed attempts in 1997 to re-enter the market via a deal with Singapore Airlines.

But few analysts had predicted that Tata, which last year became the first Indian company to earn $100bn in annual revenues, would contemplate another pass, not least given that Mr Tata had mentioned the problem of “destructive competition” in the sector last December.

Instead most close observers thought Mr Mistry, who in January became the first non-Tata family member to lead the company, would begin his tenure quietly. They expected the focus to be on turning round the conglomerate’s weaker players, including the troubled European division of Tata Steel which lost $840m, not eye-catching moves into new markets.

Yet Mr Mistry’s first big gambit is to re-enter a sector with which his two predecessors had deeply emotional connections but in which few participants make any money – raising immediate speculation about whether he was truly the driving force behind the move.

“It’s a slightly perplexing decision, and one way of looking at this is that Ratan is still calling the shots,” says one senior Mumbai-based investment banker, speaking on condition of anonymity.

Tony Fernandes, AirAsia chief executive, added to this speculation this week by providing details of the early approaches he made to Mr Tata, beginning with an exchange of text messages followed by meetings at the group’s Mumbai headquarters.

“He was very keen about it. He knew AirAsia, he saw what we had done in the market. He obviously had a passion for aviation and all the stars aligned at the right time,” Mr Fernandes told Mint, an Indian business newspaper.

There are other explanations, for those not inclined to see the deal as a sign of the continued influence of the group’s previous patriarch, who retains the title of chairman emeritus and now runs Tata’s charitable trusts.

Tata’s sprawling concerns include some divisions with residual links to the airline industry, including those related to airline catering and private charter jets.

The tie-up also could plausibly give the company the option of launching further airline ventures at a later date, having reacquainted itself with the sector as an investor with AirAsia.

Tata has made clear the deal was Mr Fernandes’s idea and that the Indian company liked what it saw despite the risks of striking out into another new business line. Put another way, those who expect Cyrus Mistry quickly to produce a slimmer, more focused Tata group might have some time to wait.

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