(Bloomberg) -- The merger of Tata Group’s joint venture with Singapore Airlines Ltd. into Air India Ltd. should help consolidate the aviation sector in the South Asian nation and provide fresh growth opportunities for the flag carrier after years of mismanagement and losses.
“India needs a high-quality, dependable long haul and ultra-long haul airline to meet the country’s air connectivity requirements,” CAPA Centre for Aviation said in a statement following the announcement that Vistara will merge with Air India. Singapore Airlines will invest $250 million for a 25% stake in the national carrier, which will become India’s second-biggest airline.
“The combination of Tata Sons and Singapore Airlines will provide Air India with the requisite strategic expertise, industry capabilities, access to capital and determination to create an airline that India will be proud of,” Sydney-based CAPA said.
For Tata, the merger marks the start of yet another chapter in its long and tumultuous history in aviation. The conglomerate set up Air India in 1932, originally flying mail between Karachi and Bombay, now known as Mumbai. It was taken over by the government in the 1950s and only bought back by Tata last year in a win for Prime Minister Narendra Modi’s push for privatization.
Tata embarked on two other ventures in the middle of the last decade with Vistara and AirAsia India, but both failed to make money even prior to the Covid pandemic. The conglomerate also owned Air India Express, established in 2005, leaving it with four different airlines in a highly competitive and fragmented market.
Bloomberg News reported on Tata’s plan to integrate the four carriers earlier in November.
All brands combined gave Air India a domestic market share of about 26% in October, far behind market leader IndiGo’s nearly 57%. The Vistara merger should give the formerly state-run airline more firepower to aggressively expand, and a huge order for aircraft is already in the works. Air India Chief Executive Officer Campbell Wilson said last month the airline will triple its fleet of 113 aircraft over five years.
Tata and Singapore Airlines have both agreed to inject fresh capital if needed to help lift Air India back to the highs of decades gone by, when the airline had a glitzier sheen as it sought to reflect India’s rising might. It was famed for its advertisements featuring Bollywood stars (as well as ashtrays designed by surrealist painter Salvador Dali.)
“We have an opportunity to deepen our relationship with Tata and participate directly in an exciting new growth phase in India’s aviation market,” Singapore Airlines CEO Goh Choon Phong said Tuesday. “We will work together to support Air India’s transformation program, unlock its significant potential, and restore it to its position as a leading airline on the global stage.”
Singapore Airlines will own a quarter of an entity that will have 218 aircraft once the brands are combined, and have access to lucrative landing and parking slots around the world. The merger also gives it a strong foothold in the busy westbound market from India, which is dominated by the the likes of Dubai’s Emirates, sometimes dubbed the unofficial national carrier of India.
Singapore Airlines said the new entity will be four to five times larger than Vistara and help strengthen its multi-hub strategy. Vistara, a full-service carrier, operates flights to 12 international destinations, including London, Frankfurt, Paris, Abu Dhabi and Dubai.
The investment could help Singapore Airlines protect itself against the fallout from another pandemic. Covid hit the carrier especially hard because it had no domestic market to serve while international borders were largely closed. Phong told Bloomberg News in June the company was committed to working with international partners and establishing overseas hubs.
Singapore Airlines can easily fund the Air India investment, which “should be a better alternative than more outlays in sub-scale Vistara,” Bloomberg Intelligence analysts including Tim Bacchus wrote in a note. The carrier can also maintain a strong balance sheet, with leverage rising to just 0.8 times, analysts including Sharon Chen said in a separate note.
Singapore Airlines rose 0.2% Wednesday. It’s up about 10% this year.
In the meantime, Air India said earlier this month it would acquire AirAsia’s local venture and merge it with Air India Express into a single low-cost carrier. That consolidation will likely happen by the end of 2023.
Tata and Singapore Airlines have a long history, including an ambitious project in 1994 to start an airline with 100 planes, but the government refused to allow a foreign entrant and the idea was abandoned. The two teamed up again in 2000 to bid for a stake in Air India when the government sought to sell shares in the carrier. That plan was later dropped because of political opposition.
Tata won its bid for Air India in October 2021, ending decades of attempts to privatize a debt-laden airline that was kept alive on years of taxpayer-bailouts. Air India has been unprofitable since its 2007 merger with state-owned domestic operator Indian Airlines Ltd. In the years since, Jet Airways India Ltd., which bought budget carrier Air Sahara, and Vijay Mallya’s Kingfisher Airlines Ltd., which took over Air Deccan, have both gone bankrupt.
--With assistance from Ragini Saxena.
©2022 Bloomberg L.P.