Vistara to merge into Air India, SIA to get 25% equity

Prannoy & Radhika Roy out of NDTV
Vistara to merge into Air India

Indian Market
by 5paisa Research Team Last Updated: 2022-12-10T16:49:15+05:30

It was a deal that was always waiting to happen. With the Tatas deciding to merge all their aviation interests under the Air India brand name, it was always a matter of time because the Vistara brand ceased to exist in India. Under the terms of the divestment, Tatas had to retain the brand name Air India, so the only option was to let Vistara go since it did not to make sense to have two full service aviation brands in the same market the only missing link in the entire story was the status of Singapore Airlines, which had a 49% stake in Vistara. Now even that has been resolved and there is clarity on the future role of SIA in Air India.

Vistara Airlines is a 51: 49 joint venture between Tata Sons and Singapore Airlines respectively and it was formed in 2013. Since then, Vistara has been flying in the Indian success with relative success as a full service airline. Vistara already had international operations in the Middle East Asia and Europe. The only question was if Vistara was to be absorbed into the Air India brand, then where does Singapore Airline stand. Now it is clear that Singapore Airlines will get a 25.1% stake in the merged entity of Air India and Vistara, so SIA gets compensated for its Vistara stake and also continues its India relationship.

As part of the agreement, Singapore Airlines gets 25.1% stake in a much larger venture that straddles full service flying and low cost flying across the domestic market and the international market. For the 25.1% stake in the new venture, Singapore Airlines will forfeit its 49% stake in Vistara Airlines and in addition it will also infuse an additional Rs2,059 crore into the new aviation entity. For Singapore Airlines, it would be a good deal as it gets 25.1% in a venture that is already the second largest aviation player in India and targeting 30% market share over the next five years, on a substantially enhanced market size.

Effectively, the merged Air India will now comprise the Air India and the Air India Express that it bought from the government as part of the strategic sale. In addition, the domestic and international airline operations of Vistara Airlines will also be included in it. Apart from these, the entire Air Asia India business will also be part of this deal since Air Asia Berhard had already sold its residual 13% stake in the joint venture to the Tatas. However, the complete execution and consummation of the transaction will take around 16 months and is expected to only be completed by around March 2024.

What does the merged entity mean in terms of market size. It will be the second largest domestic airline with market share of 25.9%. That would still be behind the 56.7% market share that Indigo currently commands in the domestic aviation market. In the international market, Air India commands a leading 22.7% market share and operates international flights in the low cost and the full service mode. The plan is to offer a predominantly low-cost flying experience to the domestic market and a predominantly full service flying experience for the international market. With its international reach and best practices in place, Singapore Airlines is expected to add a lot of value to the aviation joint venture.

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