India's most significant aviation transaction ever went underway last week, as the Tata Group completed the acquisition of Air India from the government of India. This marked the return of Air India to its original owners after 69 years. However, this transaction has also made life a bit complicated for the Tata Group, which now has a stake in four airlines, two of which are full-service and two are no-frills. Tata keeps Air India and Vistara as separate full-service carriers. After attempts to re-enter aviation by acquiring Air India were cold-shouldered by the government in the earlier part of this century, the Tata Group decided to move on. In the past decade, they signed up with Tony Fernandes' AirAsia Berhad to launch AirAsia India, where both AirAsia and the Tata Group each owned 49 percent, and the nominees of the Tata Group had two percent. When dissatisfaction with the way AirAsia India was being run surfaced - with all major decisions being taken from Kuala Lampur in defiance of Indian regulations -, the Tatas took majority stake by acquiring the two percent stake and installed their CEO at the airline. AirAsia has, since then, sold a majority of its stake in the airline and only owns about sixteen percent of AirAsia India. The Tatas are expected to exercise their call option on these shares and acquire 100 percent of the company soon, and as we reported earlier, this will be merged into Air India Express. The Tatas also, in the meantime, signed up an agreement with Singapore Airlines to launch a premium full-service carrier in India called Vistara TATA SIA Airlines. The entity which owns the airline is 51 percent held by the Tatas and 49 percent by Singapore Airlines. The airline celebrated seven years in service recently. However, the Tata Group gets to nominate the Chairman of the Board of Directors, and Singapore Airlines deputes personnel who is the company's Chief Executive Officer, typically for a three to four-year term. Tata can't restructure Air India quickly With the acquisition of Air India, the world is wondering why the Tata Group would want to operate two full-service airlines. However, it seems this would continue to be the case for the time being. In the case of Air India, the Tatas cannot restructure the company for a year after the takeover, which means any restructuring plans will have to wait. Singapore Airlines, bleeding financials due to the pandemic, did not feel comfortable teaming up for another acquisition, and so they sat out of partnering with Air India for the acquisition. However, the door has been left open for them to come in later. It remains to be seen where Singapore Airlines want to go from here because turning around Air India will be a long-term commitment for anyone who steps up. While Air India is the worse-off carrier in terms of full-service amenities, passenger experience, and aircraft right now, they do have the full attention of the Tata group now, with experts pulled in from across the conglomerate to start fixing up the airline. However, Vistara, where the Tatas have 51 percent economic interest, won't cooperate with Air India, and for now, the two airlines will be competing. This would mean that Air India and Vistara could be competing for the same passengers simultaneously. A merger would need clearance from the authorities Bhaskar Bhat, the Chairman of the Board of Directors of TATA SIA airlines, clarified that there were no plans to merge the two airlines at the moment. Even if Vistara and Air India can reach some co-operation agreement, which could span codeshare across their networks and perhaps a partnership on frequent flyer programs, this would need to be cleared by the Competition Commission of India, India's monopolies regulator, and India's aviation regulator, DGCA, to ensure that no boundaries are stepped. Various airlines have tried cooperating in the past, such as Kingfisher and Jet Airways, but it has never worked out. The whole situation would mean that the Tatas would continue to bleed cash in two entities instead of one due to the stalemate caused by their partnership with Singapore Airlines.
