Air India and Vistara to merge, as India’s aviation industry consolidates

India’s aviation industry may finally be on the road to consolidation and profitability after an agreement was struck to merge Air India and Vistara.

A deal has looked likely ever since Indian conglomerate Tata, which owned 51% of Vistara alongside 49% shareholder Singapore Airlines, acquired Air India in a privatisation earlier this year. The plan is build on Vistara’s good reputation in the market in conjunction with Air India’s slot portfolio and ownership of key international flying rights.

Vistara, which is only seven years old, is currently the second largest domestic airline in India behind IndiGo.

The agreement will see Singapore Airlines remaining as an investor. It is pumping in $250 million of fresh money which will give it a 25.1% share in the new airline, which will trade as Air India. Singapore Airlines has also agreed to invest up to $650 million of additional funds into the new carrier as required once the merger is complete.

As with all airline mergers, regulatory approvals will slow down completion. The merger is expected to finalise in March 2024.

Tata is also in the process of consolidating the low cost part of the group. It has taken full control of AirAsia India and is planning to merge it with Air India Express.

The merged Air India / Vistara / AirAsia India will have 218 aircraft and will fly 38 international and 52 domestic routes.

Tata Sons chairman Natarajan Chandrasekaran says:

”We are excited with the opportunity of creating a strong Air India which would offer both full-service and low-cost services across domestic and international routes.

”The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline. As part of the transformation, Air India is focusing on growing both its network and fleet, revamping its customer proposition, enhancing safety, reliability, and on-time performance.”

Whilst this may be true, it is difficult to understand what value Singapore Airlines sees. It is investing almost $900 million of new money, on top of its previous commitments in Vistara, to end up with a minority stake in an airline a long way from home. The press release from Singapore Airlines says that the deal will:

strengthen its multi-hub strategy

…. but that’s not exactly giving a lot of clarity.

That said, there is – clearly – huge potential in the Indian aviation market which is currently the third largest in the world. Both Tata and Singapore Airlines must be hoping that political interference can, at last, stop to allow the sector to reach its full potential.