India's antitrust body is scrutinising Air India's planned merger with Vistara and has asked the company why it should not be investigated further over competition concerns, according to two sources with direct knowledge.

It is a new challenge for formerly government-owned Air India, which Tata Group took over last year. The Indian airline has ambitious plans to modernise its fleet, operational systems and revenue management.

In a bid to streamline businesses, Tata in November said it was merging its two full-service carriers Air India and Vistara to create a bigger airline that will take on local rivals such as IndiGo and Middle Eastern carriers that dominate outbound traffic from India.

The Competition Commission of India (CCI) has flagged that on some routes and categories - such as business class travel - the merged entity could have a monopoly, said one of the two sources, who declined to be named as the matter is confidential.

The CCI has issued a so-called "show cause" notice to Air India to explain its position, and they have 30 days to respond, the two sources said.

The CCI and Air India did not immediately respond to requests for comment.

Vistara is a joint venture between Singapore Airlines and Tata.

To address CCI's concerns, Air India could make concessions such as giving up certain routes or reducing frequency, the second source said.

If it is not satisfied with Air India's concessions, the CCI could also order a full-blown investigation before deciding whether to allow the merger to proceed, that person added.

Air India, the sources said, remains confident the matter can be resolved by recommending certain changes.

Major airline mergers typically receive scrutiny from big markets in which they operate around the world. In November, Tata and Singapore Airlines said they expected to complete the merger by March 2024.