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Now that Tatas have taken over Air India, what happens to Vistara, JV with Singapore Airlines

An industry watcher says SIA tying up with AI is a natural progression. For Vistara and AI to continue as two full fledged FSCs in India they will fight and compete with each other.

January 27, 2022 / 07:52 PM IST

The process of transferring Air India to the Tata group was completed on Thursday, January 27. Soon after, the group issued a statement to the BSE, announcing the completion of the purchase of Air India from the government of India.

“Best wishes to the new owners,” Minister of Civil Aviation Jyotiraditya M. Scindia tweeted. “I am confident that the airline will bloom under their wings, and pave the way for a thriving & robust civil aviation industry in India.”

The question that arises now is whether Singapore Airlines (SIA), which holds a 49 per cent stake in Vistara, the other Tata-owned airline, will also come on board Air India. The Tatas also have a stake in AirAsia India.

According to industry watchers, SIA has already lost a great opportunity by not being a part of the Tata group’s bid for AI. “India is a great source market for outbound traffic and only a small percentage of the market has been tapped by existing airlines. If SIA was invested with the Tatas in the successful bid for AI it could have been in the driver’s seat in setting policy, getting in people to run the airline, aligning aircraft and routes so that SIA and AI offer more choices to passengers in the Indian and global market,” a veteran with four decades of experience in aviation said.

He added that SIA not being on board AI right now perhaps has to do with the fact that it is running in losses and like airlines across the world has been hit by the COVID-19 pandemic. He, however, maintains that it is only a question of time before SIA comes on board AI.

An industry watcher says SIA tying up with AI is a natural progression. For Vistara and AI to continue as two full fledged FSCs in India they will fight and compete with each other. The unmistakable logic for SQ is that a privatized AI with all its traffic rights and same owners as Vistara is a better party to ally itself to than stay tied in with Vistara and compete with AI. Keeping both Vistara and AI may be practical in the short term till AIs messes are sorted but eventually for Tatas it becomes a case of fighting a war with a split force which is not exactly desirable. AI is also star alliance which is another step closer to synergies with SQ.

Even otherwise, conditions are conducive for SIA to enter the Indian market. The International Air Transport Association (IATA) has said that international passenger traffic should return to the 2019 levels by about 2024. India is a huge market for outbound travel and close to 1.05 crore foreign tourists arrived in India during 2018, according to a Ministry of Tourism document, registering an annual growth rate of over 5 per cent.

Besides this, India is an origin and destination market and when international traffic returns to pre-Covid levels, flyers will prefer non-stop flights to international destinations like the US and Canada, and London, Frankfurt and Paris.

“See how well the AI non-stop flights to the US have done despite the current product offering not being of world class standards. If SIA had been on board, it would have been reaping the benefits of this market from day one,” the industry veteran quoted above pointed out.

Picking up a stake in AI could also be financially rewarding for SIA because as and when AI returns to profitability it will be able to take a dividend back. This will be additional money from India apart from the money that SIA is making on operating flights to and from India.

Jagannarayan Padmanabhan, director & practice leader of transport and logistics at CRISIL Infrastructure Advisory, said there was merit in SIA onboarding Air India as both are full-service airlines with a good brand recall in India and abroad.

A combined entity can also leverage the network partnerships better and also be able to bring significant operational synergies. A combined entity would be able to reap more benefits in the international market.

Vinamra Longani, head of operations at Sarin & Company, maintains that given that Vistara continues to lose money seven years since it took flight, SIA would do what it takes to cut its losses, especially becaause of the pandemic. “Working with the Tata Group and aligning Vistara with Air India would help it do just that,” he said.

Others maintain that SIA is not likely to join AI in the short term, but would do so in the medium to long term.

An airline professional with over two decades in Asian airlines maintains it is very hard to predict whether Air India, together with the Tatas, will consolidate Vistara into AI. “Whilst India is always of strategic interest to SIA, the cumulative losses of Vistara and difficulties of making money in Indian aviation must give it pause for thought. Historically, SIA’s foreign investments have been disastrous (Air New Zealand/ Virgin Atlantic) and I am sure its major shareholder Temasek will be asking some challenging questions,” he cautioned.

Singapore has not had a very good experience in the aviation sector in India as well. In the early 1990s, SIA was interested in setting up a domestic airline in India in which it invested time and money. Unfortunately, the airlines then operating in the domestic Indian market made sure that the project never took off.

Again in the early 2000s, SIA tied up with Tata Sons Ltd to bid for AI which the then Vajpayee government was keen to privatise. SIA spent a considerable amount of funds placing a large team in Delhi’s ITC Maurya for doing the due diligence. Eventually, SIA realised that the entire effort was being stonewalled and decided to abandon the project.

It did not end there. In November 2015, when Prime Minister Narendra Modi visited Singapore, a Memorandum of Understanding to facilitate mutual cooperation in a number of mutually agreed areas of civil aviation services and airport management, beginning with Jaipur and Ahmedabad airports, was signed. Even though the Indian Cabinet cleared the MoU, it was never implemented despite teams from Changi airport visiting India.

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Ashwini Phadnis is a senior journalist based in New Delhi.
first published: Jan 27, 2022 07:49 pm
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