Air India and Vistara, the two full-service airlines owned by Tata Sons, are to merge.
The merger will see Singapore Airlines (SIA), which has a 49 percent stake in Vistara, invest $ 250 million for a 25.1 percent stake in Air India. The remaining stake in Vistara is held by Tata Sons, which acquired a 100 percent stake in Air India (AI) in January this year.
In a statement, SIA said it intends to fully fund this investment with its internal cash resources, which stood at S$17.5 billion as of 30 September 2022. “SIA and Tata have also agreed to participate in additional capital injections, if required, 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 INR 50,200 million (S$880 million, US$615 million), payable only after the completion of the merger. 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. SIA intends to fully fund any additional capital injections with its internal cash resources,” the statement adds.
Talks held since October
The latest announcement comes after SIA announced in October this year that it was in talks with India’s Tata Group about a potential merger of Vistara (Singapore Airlines pursues Air India stake to expand market presence (onmanorama.com).
This is not the only connection AI has with SIA. In May this year, AI announced that it had selected Campbell Wilson as AI’s Chief Executive and Managing Director. Wilson resigned from Scoot, SIA’s low-cost arm, to take up the position at AI.
The merger between Vistara and AI is expected to be completed by March 2024, in time to make the best use of SIA’s energies to boost an airline in the world’s fastest-growing market, which is expected to become the third-largest market by 2027. The merger is expected to be completed when the International Air Transport Association (IATA) expects the global air passenger traffic to return to pre-COVID numbers. The merger will also make AI acquiring wide-body aircraft easier through the relationship SIA enjoys with Boeing, Airbus, and global leasing companies. Wilson has already said that he wants to expand AI’s global footprint and make it an airline of choice for sixth freedom traffic, which now travels on KLM and SIA, among other global airlines.
The merger will prove to be beneficial for both SIA and AI. India is a huge outbound market with several domestic feed markets, an advantage that Singapore does not possess. The merger allows passengers of the two airlines to travel seamlessly on each other’s flights and reach various destinations globally. Currently, AI operates to Washington DC, Chicago, and Canada, all points that SIA does not operate to. With the merger, passengers in Singapore will have easier access to these markets through AI.
Merger bolsters SIA’s presence
The SIA statement also says that the merger will bolster its presence in India, strengthen its multi-hub strategy, and allow it to continue participating directly in a large and fast-growing aviation market. Mr. Goh Choon Phong, Chief Executive Officer of Singapore Airlines, said, “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. We 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.”
Commenting on the merger, Mr. Natarajan Chandrasekaran, Chairman of 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. We are transforming Air India, with the aim of providing a great customer experience, every time, for every customer. As part of the transformation, Air India is focusing on growing both its network and fleet, revamping its customer proposition, enhancing safety, reliability, and on-time performance.”
Terming the announcement of the consolidation of Vistara into Air India as yet another strategic step towards firmly re-establishing and re-building Air India, Satyendra Pandey, Managing Partner of aviation advisory firm AT-TV, added that the consolidation will bring the Tata group closer to their market share goal of 30 percent while deriving significant synergies between the airlines. “The stake in Air India that Singapore Airlines gets comes after an additional ~$ 257 million fund infusion by SIA. This signals skin in the game, which will benefit both sides,” Pandey says. Agreeing with CAPA’s assessment, Pandey says the merger shows a flightpath where there will be a clear duopoly.