Tata Group may explore AirAsia India-Vistara merger as it doubles down on aviation

Photo: Company website

A merger of budget airline AirAsia India with full-service carrier Vistara is among options considered by the Tata Group as it gears up for a wider play in the aviation business.

The salt-to-software conglomerate has set up a strategy team headed by Tata Sons Pvt. Ltd’s chief financial officer Saurabh Agrawal to explore options, including mergers, consolidation and rebranding of its airline ventures, two people aware of the matter said, requesting anonymity.

Tata group, which placed an expression of interest for Air India, recently announced its decision to raise its stake in AirAsia India to 84% by buying out a part of its Malaysian partner AirAsia Bhd’s shares.

A decision on the way forward with AirAsia India is expected to be taken by March-end by when there will likely be more clarity on Tata’s bid for Air India, the people cited above said.

“A final decision in this regard depends on whether AirAsia continues as a minority investor in the airline or not,” one of the two people cited above said. “In the event of AirAsia Bhd continuing to stay invested in AirAsia India, the Tata group may not be required to pay a royalty for the use of the brand name, which is a key factor,” the person added.

Tata group also owns 51% of Vistara, with the rest held by Singapore Airlines (SIA). Meanwhile, under the share-purchase pact with AirAsia Bhd, Tata Sons has the option to raise its stake to 100% in AirAsia India.

The pact, may however, be terminated if Tata Sons doesn’t close the deal to first buy the 32.67% additional stake in AirAsia India by March-end.

A potential merger of AirAsia India with Vistara to operate a single airline under the Vistara brand would require the consent of SIA, the people cited above said. “A merger (of AirAsia India) with Vistara depends on many factors, including improvement in load factor, cash flows, vaccination, global lockdown and travel restrictions, the proposed deal with Air India, consent of Singapore Airlines, completion of pending aircraft orders and competition from other airlines in India,” the first person said. “If this works, several sectors will open up for flying, thus, improving cash flows for AirAsia India,” the person added.

The person said Tata group is also examining the option of merging AirAsia India, Vistara and Air India, if it wins the bid for the national carrier, and run them under a new brand provided it is agreeable to SIA.

“The Air India deal will depend on the government as it may absorb a large part of the airline’s debt. If the government keeps conditions, which includes keeping the Air India brand name intact for a time period, a different strategy will be required,” the person said.

If the airline businesses are not merged, Tata group may either continue to run Air India separately or merge AirAsia India with Air India. It may also run Air India separately and merge Vistara and AirAsia India under one entity, with the consent of SIA, the first person said.

“The first will depend on the conditionality kept by the government and the price at which the proposed deal is formalized. The second will depend a lot on how the balance sheet of AirAsia India improves, how the covid-19 situation subsides, air routes open up and whether Singapore Airlines agrees for a merger or not at a future date after 31 March,” the person said.

“All the different scenarios are being assessed by a dedicated team,” the person added.

A spokesperson for Tata Sons declined to comment.

A strategic consolidation among Indian airlines is inevitable and could result in the total number of airlines coming down to two to three from six, aviation consultant Capa India said in a 4 January report.

The article was first published on livemint.com.

Singapore Reporter/s

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Following vacancies can be applied for (only in Singapore).   

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.