Vistara plus Air India. Together about 185 planes with more on the way. Is that enough to take on market leader IndiGo which has 280 planes and a whopping 57 per cent of the Indian aviation market?
This could be the great battle about to unfold in Indian and international skies. Singapore Airlines (SIA) has announced that it’s in talks with the Tata Group to merge Air India (AI) and Vistara. It stressed that the talks were still a work in progress. And once an agreement’s reached there are are still government clearances to be obtained before any planes take off.
SIA already holds a 49 per cent stake in Vistara while Air India holds 51 per cent of the carrier. SIA’s statement on Thursday said: “the discussions seek to deepen the existing partnership between SIA and Tata, and may include a potential integration between Vistara and Air India.”
A new giant
The merger, if it happens, will create a new giant. Air India has 125 aircraft and Vistara has 52 with nine expected to join the fleet in the near future. Vistara has been expanding its fleet rapidly since 2020 even though it was financially stretched because of the aviation industry slowdown caused by Covid-19.
A merger of Vistara and AI had been widely anticipated in the airline industry and it’s believed to have been delayed because of SIA’s financial difficulties. At the height of the pandemic, SIA slashed thousands of jobs, renegotiated aircraft contracts and postponed plane deliveries to contain expenses.
But in July it returned to the black, posting a S$370 million (US$268 million) profit. SIA’s now aiming to boost flights to destinations globally, including bringing its India operations back to pre-Covid levels.
The discussions with Air India are in line with SIA’s aim of having multi-hub overseas operations. Air India has lucrative landing slots at many major airports globally.
Tatas: stakes in 3 airlines
The Tata Group, which completed its $2.4 billion takeover from the government of Air India last year and took control of the carrier in January, currently has stakes in three airlines – Air India, Vistara and AirAsia. In addition Air India Express, a low-cost airline that mainly flies on Gulf routes, is a wholly owned subsidiary of Air India.
The Tata Group is merging its other airline, AirAsia India, with Air India Express, and Tata Sons chairman N. Chandrasekaran has frequently said the group’s airline businesses need to be consolidated to streamline operations and reduce costs.
Chandrasekaran said the Tata Group’s ultimate goal is to have one full-service carrier and one low-cost carrier.
A 26% stake?
SIA is likely to be negotiating for a 26 per cent stake in the AI but it’s not clear how much the Tatas might be willing to give them. SIA’s 49 per cent stake in Vistara could partly be used to cover the cost of buying its AI stake.
Market leader IndiGo’s 280 aircraft are mainly flying domestic routes though it is now focusing on expanding internationally.
Air India has placed a jumbo-sized order for 200 planes and in the short run it is looking at leasing 30 wide- and narrow-bodied aircraft to expand both domestically and in the international market.
Good for both companies
A Vistara-AI merger would probably suit both companies as SIA could bring in its valuable airline industry knowhow. Already the two groups are working together quite closely and AI’s current CEO and managing director Campbell Wilson was formerly the CEO of Scoot, SIA’s low-cost airline.
Vistara’s CEO Vinod Kannan is also an SIA old-timer who was with the airline for over 20 years, before moving to Vistara, first as chief financial officer and moving up to the top position earlier this year.
Both Vistara, which launched operations in 2015 and AI have, in recent months, been looking at expanding internationally. Vistara now flies to destinations in Asia, Europe and the Gulf.
No certainty yet
The SIA release stressed that, “there is no certainty or assurance whatsoever that a) any definitive agreement will be entered into or b) the potential transaction will materialize or proceed to completion arising from these discussions. Even if a transaction were to materialize, it would be subject to the relevant regulatory approvals, amongst other matters.”
If SIA got between a 15 per cent and 26 per cent stake it would probably have a director on the AI board.
SIA has always been keen on entering the Indian market and in the late 1990s had attempted to enter the country via a partnership with the Tata Group.
Strong domestic travel flows
SIA’s ambitions to be a bigger player in the market are fuelled by India’s strong domestic and international travel flows that are expected to more than double over the next 10 years.
Bloomberg, meanwhile, reported that Air India is considering raising at least $1 billion in a funding round that would raise the carrier’s value to $5 billion to fund its ambitious fleet expansion plans.
