In another step towards consolidating the airline business, the Tata Group has finalized the merger of Air India and Vistara. Apparently, the Tata Group and Singapore Airlines (SIA), the co-owners of Vistara, have agreed to the merger. Tatas could own around 75% of the combined company, with SIA owning the remaining 25%. Currently, Tatas and SIA hold 51% and 49% of Vistara shares respectively. The proposed merger is expected to be announced shortly and is expected to be completed within a year of receiving all necessary clearances.
The Tata Group hopes to develop Air India as an umbrella carrier through the merger. Tata Group wants AI to serve as an umbrella provider, with a full-service leg formed by combining Vistara and the Maharaja and a low-cost leg formed by combining AirAsia India (AAIPL) and AI Express. This is part of the Tata Group’s plan to consolidate the four airlines under one entity, Air India.
The Tata Group currently operates four airlines, Air India, its subsidiary Air India Express, Vistara and Air Asia India. Among them, Air India and Vistara are full-service operators while AirAsia India and AI Express are low-cost carriers. The group has already initiated the merger of Air Asia India with Air India Express after the group purchased AirAsia Aviation Group’s 16.3% share in AirAsia India. After the Rs 155.6 crore deal was finalized earlier this month, Tata Sons became the 100% owner of AirAsia India, and now the company is in the process of merging it with AI Express, which is expected to be completed in 12 months.
The company has started work on the integration of information technology and passenger reservation systems, with AI Express’s systems being moved to AirAsia India’s system. The Competition Commission of India has already approved the proposed acquisition of 100% of AirAsia India’s shareholding by Air India.
The move will make Air India India’s second largest airline in terms of fleet and market share. Eventually, the merged entity of Air India-Vistara will be a full-service airline, and the merged entity of AirAsia India-Air India Express will become the low-cost arm of the group. According to people familiar with the matter, Air India will be the group’s sole airline brand, with Air India Express as its low-cost arm. Which means the Vistara and AirAsia India brands will be discontinued.
As three related companies (AI, SIA and Vistara) now have a significant presence on the “overlapping passenger routes” (Delhi-Singapore and Mumbai-Singapore) in addition to the “overlapping freight routes” between India and the city-state, competition and consumption The Commission of Singapore (CCCS) has expressed concern over AI’s acquisition by Tata in June.
According to reports, in early November, one of the executives said that SIA had decided to become part of the integrated company since India is a major market for the airline. He said, “SIA has reaped the benefits of Vistara and realizes that the cost of scaling Vistara will be significantly higher compared to Air India which is already of significant size.”
The Tata Group regained control of Air India in January this year after placing the highest bid for the airline, which was operating at a loss. He had submitted a proposal of Rs 18,000 crore, which included a cash payment of Rs 2,700 crore and the assumption of Rs 15,300 crore of carrier debt.