The Tata Group, which has successfully acquired Air India for Rs 18,000 crore, may have to pump in more than $1 billion to improve the airline’s passenger reservation system and upgrade and refurbish the fleet, Business Standard reported quoting sources.

The salt-to-software conglomerate will first have to refinance Air India’s existing debts, rewrite multiple business contracts with vendors and suppliers and finally upgrade the aircraft, the sources said.

The Tatas are already present in the aviation sector through two existing airlines -- Vistara and AirAsia. For the Tatas, the first challenge would be to tackle a schedule overlap.

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The Tatas could integrate Air India’s operations with Vistara for international flights and Air India Express with AirAsia India to work in the low-cost space, the report said.

“Any decision on the integration of operations is not going to happen immediately. First, the group will take complete ownership of AirAsia, probably by March, and then integrate the airline with Air India Express to develop a formidable low-cost operation. Any decision to merge with Vistara will take time as it will require permission from Singapore Airlines,” the sources told Business Standard.

However, the Tatas have to prioritise rewriting the agreements with lessors. The government has agreed to pay Rs 11,939 crore of lease dues, while the title deeds of aircraft will be transferred to Tata Sons.

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The Tatas won the bid for Air India and its subsidiary Air India Express at an enterprise value is Rs 18,000 crore. Of this, Rs 15,300 crore will be set aside for debt refinancing and the remaining Rs 2,700 crore will be paid to the government.

As on August 31, Air India's debt stood at Rs 61,562 crore, primarily raised on sovereign guarantees. However, the larger part of the debt will be transferred to a special purpose vehicle called Air India Asset Holdings Ltd after privatisation. The government is likely to retire the debt it will take on, forcing the lenders to take a haircut.

Next, the Tatas will have to upgrade the Air India fleet of 141 aircraft, which is a mix of narrow and wide-body Airbus and Boeing aircraft. Of these, only 118 will be handed over to the Tatas in fly-worthy condition.

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The Boeing 787 Dreamliner fleet faces a severe shortage of parts and engines that have led to some of them lying unused. Before the pandemic in 2019, Air India had leased six aircraft engines from GE for its Dreamliners. However, those engines were returned as the fleet was grounded due to the COVID-19 lockdown.

AI also did not sign the contract for overhauling the 787 fleet with Boeing due to the funds crunch. The agreement needs to be signed immediately so that the fleet’s landing gear can be overhauled.

Similarly, the Tatas will have to revisit the maintenance contracts of engines, some of which are extremely costly. For example, Air India pays around $8 million every month for GE’s ‘on-point’ programme for the 787 fleet. When the payment stopped for the programme, servicing on engines was also halted.

The Tata are also likely to invest in upgrading the cabins.

Of its 70 Airbus fleet, Air India will hand over 58 in fly-worthy condition to the Tatas. Similar overhauling of engines would be required for these aircraft.

“The Tatas will have to take a decision on whether to continue with the A319 and older A320 aircraft or phase them out. The new generation aircraft (A320 Neos) are relatively fuel-efficient and are used by group airlines,” the source said.

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(Edited by : Shoma Bhattacharjee)