FOR Tata group shareholders, Ratan Tata's decision to withdraw the airline proposal may be good news. Here's why:
Not an envied business: Running an airline is hardly the most seductive business on earth, rather one of the toughest. The Tatas did start India's first airline, but that was a long time ago. After the government refused equity participation by a foreign airline, the Tatas had to work out a technical collaboration with Singapore Airlines. But the collaborators' commitment is far higher when they have an equity stake.
Hurdles from the civil aviation ministry:See the trouble the ministry gives other private domestic airways, one of the main reasons all end up in the red. There's no reason to believe Tata Airlines would have been treated differently.
Funding pattern unclear: Says Nischal Maheswari, fund manager, Apple Asset Management Company: "As it's not yet clear who's going to contribute funds for this project, it's difficult to assess how it will affect shareholders of Tata companies." Even if the full funding is from privately-held companies like Tata Industries, the airlines' performance will influence the discounting other companies get in the capital market—group image is very important for market perception. The airline pullout signals Tatas will concentrate more on core areas and help restore investor confi-dence in the group.
Already overstretched: Telco's small car is expected in the last quarter of '98. At stake is Rs 1,700 crore, not to speak of competition from Maruti, well-entrenched in success for 14 years, Hyundai's Santro and Daewoo's Matiz.
The other Tata flagship, Tisco is on a never-ending expansion spree and many of the projects are under implementation. These include Steel Project-Phase IV (Rs 3,700 crore), cold rolled project (Rs 2,000 crore), Hot Strip Mill Project (Rs 1,000 crore), and so on. Titan Industries, though not as big as most other Tata companies but of a higher profile, has also seen a dip in profits. Its plans to develop and market analog watches for just $1 entails flooding the lower end of the world market in two years' time and in turn, a massive investment in manufacturing and marketing. The airline project could have meant engaging in another tough battle.
Not a pressure tactic: The final question: is this a pressure tactic by the Tatas? Investors would like to believe the decision is final and the group's money and energy will now be redirected to areas where they have core competency.
