Key Rating Drivers & Detailed Description

Strengths:

High strategic and economic importance to and strong articulation of support from Tata Sons

AIL, is strategically and economically important to the Tata group. Tata Sons has invested Rs 2,700 crore towards purchase of AIL (including AIEL) through its wholly owned subsidiary, Talace Pvt Ltd (or Talace). The acquisition of AIL has made the Tata group the second-largest aviation player in India. The economic importance of AIL is accentuated by the equity infusion in fiscal 2023. Tata Sons infused sizable equity in AIL and further round of sizable equity infusion is expected this fiscal.

The large order of 470 aircraft by AIL, which is purported to be one of the historic orders for the aviation industry across the globe, signifies the relevance of AIL to the group.

Tata Sons provides strategic inputs and is engaged in the turnaround of AIL. Mr N Chandrasekaran, the chairman of Tata Sons, is the chairman of the board of directors of AIL. Many seasoned professionals from the Tata group have been inducted in AIL to turn around the business.

Tata Sons has an excellent track record of extending need-based support to subsidiaries and group companies, as seen in the case of Tata Teleservices Ltd (TTSL; ‘CRISIL AA-/Stable/CRISIL A1+’). CRISIL Ratings understands that the Tata group will continue to hold majority stake in AIL (currently 100%) and will assist the company in meeting its obligations in full and on time.

Established position in the airline industry

AIL is a leading Indian player in the international market, with market share of ~20% (includes AIEL), in terms of revenue passenger kilometer (RPKM) from January to March 2023. In domestic operations, AIL’s market share was healthy at ~17.3% in terms of RPKM for May 2023. The proposed consolidation of Vistara under Air India will enhance the domestic market share.

Moreover, AIL is the only Indian airline that owns 43 wide-body aircraft, resulting in the ability to fly non-stop, long-haul flights to North America, Europe, Australia and New Zealand. The company also plans to open several regional hubs across the country to strengthen its network. Moreover, fleet addition should strengthen its market position over the long term.

The ongoing fleet and network expansion should strengthen the already established market position of AIL.

Weakness:

Modest, albeit improving, financial risk profile

AIL reported continued operating losses (adjusted for leases) over the past few years because of various factors such as restrictions on travelling amid the pandemic as well as large fixed costs. In fiscal 2023, elevated ATF prices resulted in operating losses while capital advances for the purchase of fleet and funding of losses led to higher net debt, thereby impacting the financial risk profile. CRISIL Ratings understands that the new management has undertaken various cost rationalisation measures, which will be aided by the recent moderation in ATF prices. Also, the acquisition of AIX Connect Pvt Ltd and announcement of merger with Vistara shall bring in additional operational synergies. All these factors should help improve profitability and cash accrual.

Net debt is expected to rise due to the increase in lease liabilities because of fleet expansion and due to the proposed capex for refurbishment, spare engines and capital advances towards purchase of aircraft. The financial risk profile will be supported by expected sizable equity infusion from Tata Sons which will provide cushion to the cash losses.

Still, the financial risk profile will remain modest over the medium term and will be a key monitorable.

Susceptibility to risks inherent in the aviation business

ATF cost accounts for 45-50% of the total operating cost of players in the aviation industry. Furthermore, the ATF price is directly linked to global crude prices and, hence, is volatile. Players have limited ability to pass on price increases to passengers because of intense competition and likely adverse impact on passenger load factor (PLF). While the elevated ATF price and high fixed cost have impacted operating margins of players, improvement in the margin in the near term because of the recent softening in ATF price will be a key monitorable.

 
Operations are also vulnerable to foreign exchange fluctuations as lease rentals and maintenance cost, which account for 30-35% of the operating cost, are denominated in the US dollar. The ability to pass on any large increase in operating cost will remain constrained on account of the competitive intensity in the sector.

Key Financial Indicators

NM: Not meaningful because the figures are negative; above table reflects CRISIL Ratings adjusted figures

Annexure – List of entities consolidated

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.

About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 

About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html