The financial outlay for the Singapore Airlines Group under the proposed Vistara-Air India merger is “minimal when considered against the fact that it is acquiring a 25.1 per cent in interest in the enlarged Air India”, according to a regulatory filing. Singapore Airlines (SIA), which commenced services to India more than 50 years ago, expects to immediately gain exposure to an entity that is four to five times larger in scale post the merger.
On Tuesday, Tata group and SIA announced the merger of Vistara with Air India and subject to regulatory approvals, the deal is expected to be completed by March 2024. The financial exposure of the SIA Group for the merger would effectively be the aggregate of the value of its 49 per cent interest in Vistara and the cash consideration of Rs 2,058.5 crore.
“It is noted that due to losses sustained since 2013, Vistara has zero carrying value in the SIA Group financial statements as at 30 September 2022,” SIA said in the filing to the Singapore Stock Exchange on Tuesday. Currently, SIA holds 49 per cent stake in Vistara and the remaining 51 per cent shareholding is with Tata group. Post the merger deal, SIA will have 25.1 per cent stake in Air India.
“The financial outlay for the SIA (Singapore Airlines) Group under the proposed merger is therefore minimal when considered against the fact that it is acquiring a 25.1 per cent interest in the enlarged AI (Air India) with a net asset value of approximately US$948 million (equivalent to approximately S$1,355 million) as at 30 September 2022 on a pro forma basis,” the filing said.
In the detailed filing about the deal, SIA said the merger also presents an opportunity for the SIA Group to tap into a larger platform with stronger support and financial backing at minimal financial outlay. SIA said it is anticipated that the path to expand Vistara organically would be met with multiple challenges in the industry and could potentially involve the incurrence of even higher costs and sustaining more years of losses before it can grow to a critical size and reach a profitable position.
“In light of the intense competitive headwinds set out above, the proposed merger of Vistara with AI (Air India) represents an opportunity for Vistara to expand… Critically, it also has access to valuable and coveted aircraft slots and air traffic rights at key domestic and international airports, as well as larger teams of pilots and cabin crew.
“These are currently not available to Vistara. The proposed merger would therefore enable the SIA Group to immediately gain exposure in an entity that is four to five times larger in scale compared to Vistara (through its investment in the enlarged AI) and strengthen its market presence,” the filing said.SIA intends to fully fund the investment in Air India with its internal cash resources.
SIA and Tata Sons have also agreed to participate in additional capital injections, if required, to fund the growth and operations of the enlarged Air India in FY 2022/23 and FY 2023/24.Based on SIA’s 25.1 per cent stake in Air India, its share of any additional capital injection could be up to “INR 50,200 million (S$880 million, US$615 million), payable only after the completion of the merger”.
SIA commenced operations into India in 1970 with its first service into Chennai, formerly known as Madras. As at December 2019, prior to the onset of the global pandemic as a business-as-usual reference point, SIA Group, comprising Singapore Airlines, Scoot and SilkAir, served 13 cities in India with a combined frequency of 149 departures per week.