Singapore Airlines to take 25% Air India stake in merger deal

Singapore Airlines announced on Tuesday it will take a 25 per cent stake in Air India, streamlining its aviation partnership with Tata Group as the industrial behemoth works to revive the beleaguered national carrier’s fortunes.

Air India was in January returned to the ownership of its founders at Tata, a sprawling family-owned conglomerate with interests ranging from tea to steel, after decades as a monumental drain on the public purse.

Tata and Singapore Airlines already jointly own Vistara, a full-service carrier that has nearly 10 percent of India’s domestic market, with a respective 51-49 percent share.

Both companies said they had agreed on a deal to fold Vistara into Air India by March 2024, with Singapore Airlines taking a 25.1 percent stake in the merged carrier in exchange for an equity injection of 20.6 billion rupees ($250 million).

“The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline,” N. Chandrasekaran, chairman of holding company Tata Sons, said in a statement.

“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,” he added.

The merged Air India will have a fleet of 218 aircraft, making it the country’s second-largest domestic airline after IndiGo.

Air India is already India’s largest international carrier, but its domestic market share stood at only 8.6 percent in September, the most recent month for which data is available.

Tata bought back the flag carrier for $2.4 billion in January after 69 years under state ownership, with the government writing off three-quarters of its 615 billion rupee debt.

Since then, Tata has imposed sweeping changes including the appointment of Campbell Wilson -- the former head of Singapore Airlines’ low-cost subsidiary Scoot -- as Air India’s first foreign chief executive.

Air India aims to take 30 percent of India’s domestic market share in the next five years, while rapidly expanding its fleet to cover more international routes.

“With this merger, 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 chief executive Goh Choon Phong said in a statement.

India is the world’s third-largest aviation market and is projected by Airbus to grow at 6.2 percent annually over the next two decades.

Air India, with its maharajah mascot, was once known for its lavishly decorated planes and stellar service. But its reputation declined in the mid-2000s as financial troubles mounted. It was criticised for business class seats in poor repair, customers faced delays and staff and suppliers were not always paid on time.

The airline, founded by JRD Tata in 1932 and nationalised in 1953, returned to the Tatas’ control in January.

The proposed merger will create a stronger rival to India’s dominant carrier IndiGo and give SIA, which lacks a domestic flying market, a more solid foothold in one of the world’s fastest-growing aviation markets.

SIA said in a separate statement it and Tata had agreed to inject additional capital into Air India if required to fund growth and operations over the next two financial years. SIA said it could spend up to $615 million based on its 25.1% post-completion stake, payable after the merger is sealed.

Vistara, in which SIA holds a 49% stake, forms an integral part of its multi-hub strategy, the Singaporean airline said in a statement to its local stock exchange.

The proposed deal would enable SIA to “immediately gain exposure to an entity that is four to five times larger in scale compared to Vistara”, with access to slots and air traffic rights at key Indian and international airports, it added.

The deal will allow Tata to consolidate its brands around full-service Air India and low-cost Air India Express, which is being merged with AirAsia India after the Indian group bought out former partner AirAsia.

Tata’s combined airlines will have an Indian market share of 24%, making it the largest domestic carrier after IndiGo, which has a 56% share, and a stronger competitor to full-service Middle Eastern rivals that carry a large share of international traffic.

It will give Tata a fleet of 218 aircraft, split between planemakers Boeing and Airbus, flying to a combined 38 international and 52 domestic destinations. This will make it India’s largest international carrier.

Air India has plans to lease 30 Boeing and Airbus planes, expanding its fleet by more than 25% in the near term. It is also considering a mega-order for up to 300 narrowbody and 70 widebody jets, according to industry sources.

Agencies