Singapore Airlines, Tatas to merge Vistara with Air India

Days after taking Malaysia-based AirAsia Aviation’s AirAsia India into Air India's fold, Tata Sons has signed an agreement with Singapore Airlines (SIA) to merge Vistara with Air India. The move is a part of the Tata group’s strategy to consolidate its aviation businesses under one umbrella.

Along with the merger, Singapore Airlines will infuse ₹2,058.5 crore into Air India, which will give it a 25.1% stake in an enlarged Air India group. "Singapore Airlines (SIA) and Tata Sons (Tata) have agreed to merge Air India and Vistara, with SIA also investing ₹2,058.5 crore ($250 million) in Air India as part of the transaction," Singapore Airline said in an exchange filing today.

Singapore Airlines, the flag carrier airline of Singapore, owned a 49% stake in Tata-SIA Airlines, which operates Vistara, while Tata group held the remaining 51% stake.

The merger is expected to be completed by March 2024, subject to regulatory approvals. SIA has said it'll fully fund the investment with its internal cash resources, which stood at S$17.5 billion as of September 30, 2022.

Further, both Tata group and SIA have agreed to take part in additional capital injections, if required, to fund the growth and operations of the enlarged Air India in FY23 and FY24. "Based on SIA's 25.1% stake post-completion, its share of any additional capital injection could be up to ₹5,020 crore ($615 million), payable only after the completion of the merger,” the company said.

Notably, Air India as an entity is four to five times larger in scale compared to Vistara. Earlier this month, Malaysia-based AirAsia Aviation, the holding company of Capital A's airline group, sold the entire remaining 16.33% stake in AirAsia India to Air India. Together, Tata's Air India Express and AirAsia India will now form a bigger low-cost airline, posing intense competition to other budget carriers operating in the country.

Goh Choon Phong, chief executive officer, of Singapore Airlines, said: "Tata Sons is one of the most established and respected names in India. 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."

N Chandrasekaran, chairman, Tata Sons, said: "The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline." He said the company is excited about the opportunity of creating a strong Air India, which would offer both full-service and low-cost services across domestic and international routes.

In the past, Air India has unveiled a wide-ranging transformation programme to strengthen its foundations and revamp its operations, setting it on the road to recovery and positioning itself for growth.

Air India will benefit from Vistara's operational capabilities and customer base. In total, Tata group-owned Air India, including Air India Express and AirAsia India, and Vistara have a total of 218 wide-body and narrowbody aircraft, serving 38 international and 52 domestic destinations.

Domestic market leader IndiGo, which holds a 56.7% share in the domestic aviation market, operates 280+ aircraft. IndiGo has a total destination count of 100, with 74 domestic destinations and 26 international. Air India's October market share stood at 9.1%, while that of Vistara's was at 9.2%. AirAsia's market share stood at 7.6%, as per the latest available data for October.

After the merger, Air India will be the only Indian airline group to operate both full-service and low-cost passenger services. It'll also be able to optimise its route network and resource utilisation, which will help it tap demand across market segments.

India is the world's third-largest aviation market. Demand for air travel is surging with passenger traffic expected to more than double over the next 10 years, supported by rising income levels and ongoing investments in its aviation infrastructure. The country also offers huge opportunities in the aviation space as it remains underserved with low international seats per capita.