A new and bigger airline player is coming to serve routes in and around India. All thanks to two industry titans that agreed on a monumental collaboration.
After agreeing to merge Air India and Vistara, Singapore Airlines (SIA) and Tata Sons (Tata) have announced that SIA will invest INR 20,585 million (S$360 million, US$250 million) in Air India as part of the deal. As a result, SIA would own 25.1% of an expanded Air India company.
Subject to necessary permissions, SIA and Tata want to finalise their merger by March 2024. SIA plans to pool in S$17.5 billion as of 30 September 2022, to finance the investment.
SIA and Tata have also indicated their willingness to contribute to any further financial infusions needed to support Air India’s expansion and operations in fiscal years (FY) 2022-23, as well as fiscal year (FY) 2023-24. After the merger is finalised, SIA will own 25.1% of the combined company, thus its share of any new capital injection could be up to INR 50,200 million (S$880 million, US$615 million).
The exact figure will be determined by a number of variables, including how far along the expanded Air India is in its business strategy and how many other funding choices it has. All future capital expenditures will be paid for by SIA from existing financial reserves.
Signalling India’s aviation market growth
This deal will strengthen SIA’s relationship with Tata and provide the company an instant strategic position in a business that is four to five times as large as Vistara. SIA’s footprint in India would be enhanced with the merger. Additionally, the company would be able to maintain direct participation in India’s enormous and rapidly expanding aviation market.
Goh Choon Phong, Chief Executive Officer, Singapore Airlines, said: “Tata Sons is one of the most established and respected names in India. Our collaboration to set up Vistara in 2013 resulted in a market-leading full-service carrier.”
With this transaction, Singapore Airlines can strengthen its ties to Tata and take part in India’s aviation industry as it enters a new and promising growth phase. By collaborating to back Air India’s transformation initiative, the airline will be able to realise its full potential and regain its status as a world-class carrier.
India’s economy is growing at twice the rate of any other major country. By 2027 it is expected to be the third largest in the world. Moreover, it has the third largest aviation market globally. Passenger traffic is forecasted to triple over the next decade thanks to increased income and continuous investments in aviation infrastructure. Despite this, India has a lot of untapped potential because to its low international seats per capita.
A winning combination
Air India-Vistara merger would benefit both companies. Vistara lacks Air India’s domestic and international airport slot and air traffic rights. Vistara, India’s premier full-service airline, will share its knowledge, customer base, and commitment to service and quality with Air India.
Air India and Vistara operate 218 wide and narrow-body aircraft to 38 international and 52 domestic destinations. Air India will be the only Indian airline to offer premium and economy class flights after the merger.
By improving its route network, it may increase its client base and capture demand across numerous market groups. Thus, the company could better serve business and leisure travellers. On top of it, it will greatly improve its position as India’s largest international and second largest domestic carrier.