• Singapore Airlines (SIA) has received FDI approval from the Indian government for a merger with Vistara and Air India.
• The merger, expected to be completed by 2024, will result in SIA holding a 25.1% stake in the combined group.
• The merger aims to create a dominant full-service airline in India and globally, potentially impacting competition and route networks.
• The merger represents a significant development in the aviation industry, signaling a shift towards consolidation and strengthening international ties.

In a significant development for the aviation industry, Singapore Airlines (SIA) has received approval from the Indian government for foreign direct investment (FDI). This approval paves the way for a merger between Vistara, a joint venture between Tata Sons and SIA, and Tata-owned Air India. This merger, announced in November 2022, aims to create a dominant full-service airline in both domestic and international markets.

The FDI approval, coupled with anti-trust and merger control clearances, as well as other governmental and regulatory approvals, represents a significant step towards the completion of the proposed merger. Both Indian and Singaporean antitrust regulators have cleared the deal, which is expected to be completed by the end of 2024. Post-merger, SIA will hold a 25.1% stake in the combined group.

The merger agreement was entered into with Tata Sons, Talace, and Air India on November 29, 2022. Vistara, established in 2013, is a joint venture between TATA Sons and SIA, with Tata Sons holding a 51% stake and SIA holding the remaining 49%. Tata Sons is the principal holding company of the Tata Group, while Talace is a wholly-owned subsidiary of Tata Sons. Air India is a wholly-owned subsidiary of Talace.

The Significance of the Merger

As part of the transaction, SIA will invest $360 million in Air India. This investment will be funded with SIA's internal cash resources. The investment will give SIA a 25.1% stake in the enlarged Air India group.

The merger is significant as it aims to create a dominant full-service airline in India, combining the strengths of Air India's extensive international network with Vistara's service quality. Globally, it signals the consolidation of an airline market and could impact competition, route networks, and potentially set a precedent for cross-border airline mergers. Additionally, with Singapore Airlines' involvement, it strengthens international ties in the aviation sector and may lead to enhanced connectivity between India and other parts of the world.

In related news, Air India and Bangalore International Airport Limited (BIAL) announced a pact to develop the Bengaluru airport as an aviation hub. This includes the construction of a dedicated domestic lounge, expansion of international services, and establishment of a maintenance, repair, and overhaul (MRO) facility. The Bengaluru airport currently manages approximately 5,145 flights per week, with Tata-run airlines operating 1,538 of these flights weekly, representing a 30% share in the airport's network.

Historical Context and Industry Impact

The merger comes at a time when the aviation industry is grappling with global supply chain disruptions, as evidenced by Akasa Air's challenges in reconfiguring its fleet due to a shortage of aircraft parts. Despite these challenges, the merger represents a significant milestone in the aviation industry, signaling a shift towards consolidation and increased competition.

Historically, mergers and acquisitions in the aviation industry have been a common strategy for airlines to expand their network, increase market share, and achieve economies of scale. For instance, the merger of United Airlines and Continental Airlines in 2010 created one of the world's largest airlines. Similarly, the merger of American Airlines and US Airways in 2013 resulted in the world's largest airline by several measures.

However, airline mergers are complex and often face regulatory hurdles, as they can potentially lead to reduced competition and higher fares for consumers. Therefore, they are closely scrutinized by antitrust authorities. The approval of the Vistara-Air India merger by both Indian and Singaporean antitrust regulators is thus a significant achievement.

The merger between Vistara and Air India, facilitated by the FDI approval for Singapore Airlines signals a shift towards consolidation but also strengthens international ties in the aviation sector. The merger is expected to enhance connectivity between India and other parts of the world, benefiting both the airlines and their customers.