Tata Sons and Singapore Airlines (SIA) today announced that they would merge Vistara into Air India before March 2024, subject to regulatory approvals. The Tatas will then hold a 74.9% stake in the AI-Vistara-AI Express-AirAsia India Pvt Ltd (AAIPL) combined entity and SIA the remaining 25.1% stake.
SIA will invest $ 250 million as soon as this integration is complete, valuing the new Air India at about $ 1 billion. SIA said it would like to fully fund this investment with its internal cash resources, which stood at Singaporean $ 17.5 billion (Singapore dollars) as of 30 September. SIA and the Tatas have agreed to take part in additional capital injection to fund the growth and operations of the enlarged Air India in FY2022-23 and FY2023-24.
Based on SIA’s 25.1% stake post-completion, its share of any additional capital injection could be up to $ 615 million, payable only after the completion of the merger.
The Tata Group had taken over Air India and AI Express this January. Vistara, in which Tatas have 51% stake and SIA 49%, and AI are the two full-service carriers (FSC) in the Tata fold. AI Express and AAIPL are the two low-cost carriers (LCC) in the group.
In early November, the Tatas had entered into a share purchase agreement with AirAsia Aviation Group Ltd to acquire its remaining 16.3% stake in AAIPL for $ 18.8 million (Rs 155.6 crore). The Indian conglomerate will be the sole owner of AirAsia India and merge it into AI Express in a year.
With SIA agreeing to merge Vistara into AI, Tatas will now go about seeking regulatory clearances for the same and complete the task by March 2024. This means in the next 16 months — just over two years after taking over AI — there will be a mega Maharaja in place.
What made Tatas, SIA take this decision
The plan is to have one airline, Air India alone, with an FSC and budget arm by merging the two airlines in each segment and getting them to operate under AI. This work is going full throttle.
Except for AI Express, all the other three Tata airlines — including Vistara that succeeded in terms of providing a decent onboard experience like the old AI, erstwhile Jet Airways (international product) and now-closed Kingfisher in its early years — are all losing money.
AAIPL had started flying in 2014 and Vistara a year later and both did not have a single profitable fiscal. Promoters have been losing money in all these airlines.
“India’s aviation market is currently the world’s third largest and is expected to double in the next 10 years. The new AI will be the largest international and second-largest domestic airline (in terms of passenger carriage). The plans are to triple the fleet size in the next five years. Investing in the new AI makes sense for SIA as it gives the scale required to be profitable in the long run,” sources said. SIA will provide the expertise and experience.
Tata Sons chairman N Chandrasekaran said: “The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline. We are transforming Air India, with the aim of providing great customer experience, every time, for every customer.”
Chandrasekaran noted that Air India was focusing on growing both its network and fleet, revamping its customer proposition and enhancing safety, reliability, and on-time performance — as parts of the transformation. “We are 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. We would like to thank Singapore Airlines for their continued partnership,” he said.
SIA CEO Goh Choon Phong said: “Tata Sons is one of the most established and respected names in India. Our collaboration to set up Vistara in 2013 resulted in a market-leading full-service carrier, which has won many global accolades in a short time. 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.”
The SIA CEO said, “Both airlines will work together 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.”
Air India (including Air India Express and AirAsia India) and Vistara have a total of 218 widebodies and narrowbody aircraft, serving 38 international and 52 domestic destinations.
With the integration, Air India will be the only Indian airline group to operate both full-service and low-cost passenger services.
Sharing his excitement over this new journey, Vistara CEO Vinod Kannan said: “We, at Vistara, take immense pride in embarking on this journey. Vistara is a fine manifestation of its parent brands Tata Sons and Singapore Airlines, and we are delighted that we will continue to be guided by their legacies as we merge with Air India.”
The CEO said that Air India was a legendary brand with a rich legacy that pioneered civil aviation in India and there was enormous potential for an airline group with the scale and network of the combined entity.
“We look forward to providing more opportunities for our customers, employees, and partners while putting a spotlight on Indian aviation on the global stage. The integration process will take some time, and during this phase, it will be business as usual for all our stakeholders including customers. We will continue to share relevant information with all of them, as appropriate,” he said.