Tata group are in talks with Singapore Airlines about merging Vistara and Air India

It was always going to happen. The only way the Tatas would benefit immensely from the takeover of Air India was if they merged their interests in Air India, Vistara and Air Asia into one single entity. That would have given them a market share of around 25% in the Indian aviation market. That is still less than half the market share of Indigo, but that would be the best chance for the Tatas to give Indigo a run for their money. Now it is almost official that Vistara and Air India would be combined. However, the moot point in the entire case is that Singapore Airlines is also a stakeholder in Vistara. Now a solution appears imminent. 

As per latest reports coming in, Tata group and Singapore Airlines are planning to merge the airline businesses of Air India and Vistara and planning to house the combined business under a new joint venture. It is not clear if Singapore Airlines will also have a stake in Air India, but that is what it looks like, although neither company has given any kind of confirmation. The plan is that Tatas would own a majority stake of around 75% and Singapore Airlines would own a minority stake of around 25% in the joint venture. Vistara currently is operated via the joint venture Tata SIA Airlines Ltd.

While both the parties are interested in a substantial stake in the Indian aviation market, the joint venture between Tatas and Singapore Airlines looks all set to broaden its presence in India. It is not yet clear as to what is the corporate structure that will emerge, although it is quite clear that the JV, if it does happen, would be majority owned by the Tatas and minority owned by Singapore Airlines. Tatas are also looking at the merger as part of its group streamlining where it is reducing the number of listed companies and combining companies with similar business so that there is global scale and bargaining power.

As of date, the combined valuation of Air India and Vistara is around Rs30,000 crore so if Singapore Airlines gets a stake of around Rs.7,000 crore, it would translate into a 25% share in the joint venture. That is roughly what the stake of SIA would be if you extrapolate its existing stake in Vistara JV to the entire group airline business. For Air India, this merger would provide a means to consolidate its aviation business balance sheets. For Singapore Airlines, this merger would provide access to the vast and lucrative Indian market as well as access to dozens of new slots globally, which are already under the control of Air India.

For the time being, both the sides have been cagey about speaking anything on the record, but as the reports suggest, this was always a deal that was waiting to happen. It may be recollected that in October 2021, Tata Sons had acquired Air India for Rs18,000 crore and has also infused fresh funds and capital buffers into Air India towards again making it a competitive and world class airline. Tatas have been focussing on sweating the assets in a more efficient manner as well as operational efficiencies improvement. It is estimated that even if you factor for debt, the valuation of Air India went up by 20% in last 9 months. 

Vistara, a 51:49 joint venture between Tata Sons and Singapore Airlines, has emerged as the most preferred full service airline in India. It has also been getting regular capital infusions from both the parent companies. For now, it looks like the Tata entities may finally come together for buffering its aviation venture. The equity and service support of Singapore Airlines would be the icing on the cake.