Air India, Vistara to merge as Singapore Airlines buys 25% stake

Tata Group is combining Air India with Vistara, its joint venture with Singapore Airlines (SIA), in an attempt to boost the Indian airline’s clout and help it compete better in domestic and international skies.

The merger will make it India’s largest international carrier and second-largest domestic carrier. It will have a combined fleet of 218 aircraft.

The news comes as Air India looks to boost its network, give its image a makeover under a new owner and win back market share from the likes of Indigo in India and many others abroad.

Indian salt-to-steel conglomerate Tata will hold 74.9 per cent of the new entity, while SIA will own the remaining 25.1 per cent. SIA will also invest Rs 2,059 crore in Air India as part of the deal, Tata said, adding that they aimed to complete it by March 2024, subject to regulatory approvals.

The merger was an important milestone in efforts to rebuild Air India into a "world-class airline", Tata Group Chairman N Chandrasekaran said.

Others agreed.

“The skills, people, systems and processes that have driven Vistara’s success will complement, strengthen and accelerate Air India’s Vihaan.AI transformation program,” said Campbell Wilson, the chief executive officer and managing director of Air India.

Some industry observers saw the deal as a win-win for both parties.

“Singapore Airlines is a city-state airline with no captive traffic and is dependent on through traffic, while India has one of the largest captive domestic and outbound traffic, making it a win-win situation for SIA and Tata Air India,” said aviation veteran Capt Shakti Lumba, who has been with airlines from IndiGo to Alliance Air.

The deal might also bring some relief to passengers in the form of lower fares.

“With a combined fleet, Air India will have a stronger presence in the market while being able to achieve stability in the fares,” said Rohit Tomar, Managing Partner, Caladrius Aero Consulting LLP. “As we come out of this pandemic and grow, the challenge would still be to sell the value proposition that Vistara was able to sell to its customers.”

Some others were more sceptical.

“The merger brings with it, its own fair share of challenges and a successful outcome cannot be taken as a given,” said Satyendra Pandey, Managing Partner, Aviation Advisory, AT-TV.

The deal could also trigger more consolidation in the aviation sector.

This “may very well force boards for the weaker airlines to evaluate consolidation options” as they try to take on two large and well-capitalised rivals such as IndiGo and the Tata-owned airlines, Pandey added.

Some others are worried about the future of Vistara employees.

“The immediate effect could come as aggressive downsizing and lay-offs by Vistara,” said Mark Martin, chief executive at aviation industry consultancy Martin Consulting LLC. "Let's hope maturity prevails and SIA's intention with Air India is strategic and to strengthen Air India as opposed to going the Etihad-Jet Airways way.”