After dithering for long, Singapore Airlines (SIA) has agreed in-principle to the proposal of getting on board Air India with the Tata Group. SIA said on Thursday that it is exploring a potential merger of Vistara Airline with Tata Group’s Air India. Tata Group has a 51% stake in Vistara, while SIA holds the balance 49%.
This is the first time that SIA has officially acknowledged that it is in talks with Tata Group on the possibility of merging the two airlines.
“The discussions seek to deepen the existing partnership between SIA and Tata, and may include a potential integration of Vistara and Air India,” SIA said in a statement to the Singapore Stock Exchange. “The discussions are ongoing and no definitive terms have been agreed upon between the parties,” it added.
The filing also said the establishment of Vistara in 2013 gave SIA Group a stake in India’s fast-growing aviation sector. India has strong domestic and international traffic flows, which is expected to more than double over the next 10 years. “This is an integral part of the SIA Group’s multi-hub strategy, allowing it to get access to important sources that complement its strong Singapore hub,” it said.
Vistara started operations in January 2015.
The SIA statement said that any deal would need a nod for Singapore’s competition watchdog and the anti-trust regulator in India.
It is unclear at this stage what stake, if any, SIA would have if Vistara merges into Air India, or whether fresh funds would be needed for Air India.
Still, the change of stance by SIA is significant as it did not agree to partner Tata Group when the latter was bidding for Air India. Tatas had expected that SIA would join it and it would bid for the state-owned carrier through Vistara. Though, SIA did not agree to it, it waived the no-compete clause, which enabled Tata Group to go ahead with its bid for Air India.
After acquiring Air India in January, Tatas have been trying to persuade SIA to agree to a merger of Vistara with Air India so that the group could have a single aviation entity.
The integration of Vistara with Air India will create the second largest airline in the country, after IndiGo. The Tata Group is also merging its other airline, AirAsia India with Air India Express. The Competition Commission of India has approved this merger.
Tata Sons chairman, N Chandrasekaran has often said that the Group’s airline businesses, which operate on thin margins, must be consolidated to ensure operational efficiencies and cost control.
“We will definitely have both full service and low-cost carrier ,” Chandrasekaran said few days ago at a public function. “It’s a long journey. We will have to work on many aspects of the airline and we are working at great speed. Essentially, we will have one airline with two platforms,” he had added.
Air India’s fleet strength is twice compared to Vistara. Air India has a total of 113 aircraft while Vistara fleet stands at 54. Air India has a total of 11 variants of Boeing and Airbus planes while Vistara has five variants of the same two manufacturers.
The A320neo is the single largest aircraft type in the inventory of both the airlines. Air India’s B787-800 is the other type with an equally big fleet but in the widebody type.
In September, Tata Group announced Air India’s first major expansion wherein it promised to add 30 new aircraft in the coming months which would boost its fleet by more than 25%. The Group signed leases and letters of intent for 25 Airbus narrow-body and five Boeing wide-body aircraft.
Last month Air India also outlined a five-year roadmap that involves capturing a market share of 30% in the domestic market. As at the end of August Air India had a market share of 8.5%, making it the fourth largest in the country. Experts said that the Group’s vision of achieving the targeted 30% share may not be possible without the consolidation of Vistara with Air India.