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Tata group, Singapore Airlines finalise merger of Air India and Vistara

Combined entity will become India's largest international and second largest domestic carrier

Topics
Air India | Vistara | Tata group

Aneesh Phadnis & Deepak Patel  |  Mumbai/ Delhi 



Air India
This is Tata group’s second consolidation exercise in aviation after initiating the merger of AirAsia India with Air India Express earlier this year

The and (SIA) announced on Tuesday that they had agreed to merge with to drive synergies and grab market share in the fast-growing aviation market.

After the merger, brand will cease to exist and will become India’s second largest domestic and largest international carrier, with a fleet of 218 aircraft.

This is the Tata group’s second consolidation exercise in the sector after it initiated the merger of with Express earlier this year.

As part of the deal, and in lieu of its 49 per cent stake in and fresh investment of Rs 2,059 crore in the merged entity, SIA will receive 25.1 per cent stake in the enlarged Air India, the rest will be held by the . The transaction is expected to be complete by March 2024 and will give SIA board representation in the airline.

SIA and the have also agreed to participate in additional capital injections during FY23 and FY24 that might be required to fund the growth and operations of the enlarged Air India.

Based on its 25.1 per cent stake, SIA’s share of additional capital could be around Rs 5,020 crore and payable only after the completion of the merger, said. Based on the pro-rate stake of the two partners, it indicates that the total capital injection into the enlarged AI will be up to Rs 20,000 crore over FY23-24.

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

Through this deal SIA aims to reinforce its relations with the Tata group. SIA and Tatas tried to set up an airline in India during the mid-1990s, but the plan fizzled out due to opposition from political parties and incumbent airlines. A second opportunity came in early 2000, when the government decided to divest Air India. Again Tatas partnered with SIA for a bid but once again the plan was scuttled.

Eventually, the two parties joined hands to set up Vistara, which took to the skies in January 2015. At present, Tatas and SIA own 51 per cent and 49 per cent stake in the airline and have invested over Rs 9,370 crore in it.

SIA said the merger would bring significant synergies, as Air India has valuable slots and air traffic rights at domestic and international airports, which Vistara does not have. It added that Air India also stands to benefit from Vistara’s operational capabilities, customer base, and strong focus on customer service.

Tata Sons Chairman N Chandrasekaran said this was an important milestone in the group’s efforts to rebuild Air India into a world-class airline. “Air India is focusing on growing both its network and fleet, revamping its customer proposition, enhancing safety, reliability, and on-time performance,” Chandrasekaran said.

“Air India group would comprise a single full-service airline and a single low-cost airline operating in co-ordinated and optimised manner,” Air India’s Chief Executive Officer Campbell Wilson wrote to employees.

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His Vistara counterpart Vinod Kannan told staff in an email that the airline would continue to grow its fleet and network from 54 to 70 by the end of 2023. But there was also a word of caution.

“Though we have a common shareholder we remain an independent entity vis a vis Air India till the entire process is completed and we have approval from the relevant competition authorities. Therefore, we should not engage in sharing or discussing commercially sensitive information,” he wrote.

To allay employees’ anxiety in light of the move, Kannan wrote: “There will definitely be multiple opportunities — for growth, elevation and progress. Therefore I urge you not to worry and speculate about your future.”

According to aviation consultancy CAPA, the competitive dynamics in are moving towards a two-pillar system around the Air India group and IndiGo.

“The two carriers combined in due course are expected to achieve a domestic market share of 75-80 per cent. In the international market, they are expected to grow from 37.8 per cent in Q2 FY23 to 50 per cent plus. This will redraw market and consumer power in the international arena back to Indian carriers,” CAPA said.


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First Published: Tue, November 29 2022. 20:27 IST

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