Tata To Merge Vistara With Air India
Tatas’ plan to earn back the pride of the Maharaja is likely to get a shot in the arm from this consolidation.
The Tata Group announced the merger of full-service carriers Air India and Vistara on Tuesday, making the combined entity the country’s second-largest airline.
"The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline,” N Chandrasekaran, chairman of group parent Tata Sons Pvt., said in a statement.
“We are excited about the opportunity of creating a strong Air India, which would offer both full-service and low-cost service across domestic and international routes.”
With Air India Express and AirAsia India already under its wing, Vistara’s merger with Air India will conclude the Tata Group’s attempt to consolidate all its airlines.
Tatas’ plan to earn back the pride of the Maharaja is likely to get a shot in the arm from this consolidation.
Vistara, a 51:49 joint venture between Tata Sons and Singapore Airlines, is a full-service carrier established in 2013 with international operations in the Middle East, Asia and Europe.
As part of the deal, Singapore Airlines will invest Rs 2,059 crore in Air India and hold 25.1% stake in it.
"With this merger, we have an opportunity to deepen our relationship with Tata and participate directly in an exciting new growth phase in India’s aviation market," Goh Choon Phong, the chief executive officer of Singapore Airlines, said in a press release.
The airline aims to support Air India’s transformation programme, unlock its significant potential, and restore it to its position as a leading airline on the global stage, he said.
The Impact
The merger will create India’s largest international and second largest domestic airline with a fleet of 218 aircraft.
In terms of market share, a combined Air India will be second only to IndiGo (InterGlobe Aviation Ltd.) in the domestic market. The combined market share of AirAsia India, Vistara, and Air India was 25.9% in October, according to the data from the Directorate General of Civil Aviation.
IndiGo had a market share of 56.7% in the same period.
Air India is being described as one of the most challenging turnarounds in aviation history, after the Tatas took over the company from the government in a divestment process that concluded early this year.
The Way Ahead
While Singapore Airlines said it will fund its investment with internal accruals, both companies have agreed to participate in future capital infusion rounds, if needed to fund the growth and operations of the merged entity in FY23 and FY24.
Based on Singapore Airlines’ stake, it will invest up to Rs 5,020 crore, payable only after the completion of the merger, the airlines said in a statement.
“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,” it said.
After the appointment of Campbell Wilson as CEO, the airline has moved quickly to focus on profitable routes, improve on-time performance, and enhance in-flight services.