Singapore Airlines and Tata Sons to merge Air India, Vistara

Tata group airlines — Air India, Vistara and AirAsia India — had an aggregate market share of 25.9% in October 2022 (Representative image)

Singapore Airlines (SIA) and Tata Sons have agreed to merge Air India and Vistara, with SIA also investing Rs 2,058.5 crore (US $250 million) in Air India as part of the transaction, as per a media release issued on November 29.

The merger, which is "aimed to be completed by March 2024", will give SIA a 25.1 percent stake in an enlarged Air India group with a significant presence in all key market segments, it added.

Currently, SIA holds 51 percent stake in Vistara, whereas, the remaining 49 percent is held by Tata. The latter had acquired Air India for Rs 18,000 crore from the Indian government earlier this year.

Also Read | Vistara CEO Vinod Kannan to employees: Business as usual until merger with Air India is complete

SIA and Tata have, as per the details shared in the release, also agreed to participate in additional capital injections, if required, to fund the growth and operations of the enlarged Air India in FY2022-23 and FY2023-24.

"Based on SIA’s 25.1 percent stake post-completion, its share of any additional capital injection could be up to Rs 50,200 million (US $615 million), payable only after the completion of the merger," it said.

The actual amount will depend on factors including the progress of the enlarged Air India’s business plan, and its access to other funding options, the release said, adding that SIA intends to fully fund any additional capital injections with its internal cash resources.

Through this transaction, SIA will reinforce its partnership with Tata and immediately acquire a strategic stake in an entity that is four to five times larger in scale compared to Vistara.

The merger is expected to bolster SIA’s presence in India, strengthen its multi-hub strategy, and allow it to continue participating directly in a large and fast-growing aviation market.

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As per the market summary for October 2022 shared by the Directorate General of Civil Aviation, the three Tata group airlines — Air India, Vistara and AirAsia India — had an aggregate market share of 25.9 percent.

Air India and Vistara have, over the past few months, been competing for the number two spot in Indian skies. While Vistara was able to maintain the spot for four consecutive months, it could not breach the 10 percent-mark on October, as it did in July.

Meanwhile, Air India gained significantly last month, and was only 0.1 percent behind Vistara. In terms of absolute numbers, the difference was of just 11,000 passengers.

Commenting on the Air India-Vistara merger, Tata Sons chairman N Chandrasekharan said it is "an important milestone in our journey to make Air India a truly world-class airline".

"We are excited with the opportunity of creating a strong Air India which would offer both full-service and low-cost service across domestic and international routes. We would like to thank Singapore Airlines for their continued partnership," he added.

According to SAI chief executive officer Goh Choon Phong, the merger provides an an opportunity to deepen the company's relationship with Tata and "participate directly in an exciting new growth phase in India’s aviation market".

"We will work together to support Air India’s transformation program, unlock its significant potential, and restore it to its position as a leading airline on the global stage," he said.

Vistara CEO Vinod Kannan said the integration process "will take some time", and during this phase, "it will be business as usual for all our stakeholders including customers". "Air India is a legendary brand with a rich legacy that pioneered civil aviation in India. There is enormous potential for an airline group with the scale and network of the combined entity," he added.

Aviation research and advisory firm CAPA India said the merger will "redraw market and consumer power in the international arena to Indian carriers", which has historically been dominated by foreign carriers.

Following the merger, CAPA India says, it expects to see the emergence of Air India as a global network carrier in terms of size, scale and quality "in the next six years". The airline could garner a market share of "50 percent in international traffic", it added.