The Tata Group and Singapore Airlines have announced the merger of India’s two (and only) full-service airlines – Air India and Vistara. Since Tata Sons bought Air India towards the start of the year, there have been questions about the business strategies of all the airlines under its brand. More recently, speculation began to build that Vistara would be merged with Air India, a decision that has now been confirmed by both Singapore Airlines and the Tatas.

Singapore Airlines to hold 25.1% stake

India is all set to get a bigger full-service airline – a consolidated product formed by bringing together Air India and Vistara. And that’s not all! Singapore Airlines (SIA), too, will participate in the process by claiming a 25.1% share in the eventual entity. The transaction is estimated to be completed by March 2024.

Vistara is a joint venture between the Tata Group and Singapore Airlines. SIA partnered with the Tata Group years before the Air India deal took shape, to tap the promising domestic market in India, and owns 49% of Vistara.

While its stake in the merged airline will be reduced to 25.1%, it is hoping to still reap the benefits of what is speculated to be a major player in the Indian aviation market. SIA is fully committed to the merger and is investing $250 million as part of the transaction.

Goh Choon Phong, Chief Executive Officer, Singapore Airlines, commented,

"Our collaboration [with Tata Sons] to set up Vistara in 2013 resulted in a market-leading full-service carrier... With this merger, we have an exciting opportunity to deepen our relationship and participate directly in an exciting new growth phase in India's aviation market.”

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 the coming years. Based on SIA’s 25.1% stake post-completion, the airline could inject additional capital of $615 million, payable only after the completion of the merger.

Bigger entity

With this consolidation, Air India will become the country’s second-largest carrier and a much stronger player, for both domestic and international operations, with a combined fleet of more than 215 aircraft.

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While Vistara will benefit from all the valuable slots and air traffic rights at domestic and international airports that Air India brings to the table, AI will have Vistara’s operational capabilities, customer base, and a strong focus on customer service.

N Chandrasekaran, Chairman, Tata Sons, commented.

"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. We are excited with the opportunity of creating a strong Air India which would offer both full-service and low-cost service across domestic and international routes."

Changing landscape

The deal will also bring Air India closer to IndiGo in terms of fleet size (IndiGo currently has 285 planes, per ch-aviation). With both Air India and IndiGo slated to receive more planes in the coming years, the competition is expected to get fierce.

DGCA’s latest data shows that while IndiGo continues to hold a firm grasp over the Indian domestic market, the next two airlines by market share are Air India and Vistara. Together, they hold 18% of the Indian market, a figure that is likely to increase in the future.

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For years, IndiGo’s position as India’s top airline has remained unchallenged, and while that is not likely to change anytime soon, a consolidated Tata carrier under new leadership will certainly shake things up.

What do you feel about this announcement? What are your expectations from a bigger Air India? Please leave your comments below.

• 

  Air India

  IATA/ICAO Code:

  AI/AIC

  Airline Type:

  Full Service Carrier

  Hub(s):

  Delhi Indira Gandhi International Airport

  Year Founded:

  1946

  Alliance:

  Star Alliance

  CEO:

  Campbell Wilson

  Country:

  India

  Region:

  Asia

• 

  Singapore Airlines

  IATA/ICAO Code:

  SQ/SIA

  Airline Type:

  Full Service Carrier

  Hub(s):

  Singapore Changi Airport

  Year Founded:

  1972

  Alliance:

  Star Alliance

  CEO:

  Goh Choon Phong

  Country:

  Singapore