Tatas could own about 75%, SIA 25% in AI-Vistara, Legal News, ET LegalWorld – Legal Firms


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The Tata Group and Singapore Airlines (SIA) are learnt to have finalised the proposed merger of Air India and Vistara. While Tatas will have about 75 per cent stake in the merged entity, the remaining will be with SIA, say people in the know. In Vistara, Tatas and SIA’s stake is at 51 per cent and 49 per cent, respectively. The proposed merger, which is targeted to be completed within a year on getting all required approvals, is likely to be announced shortly.

Comments have been sought from Tatas, AI, SIA and Vistara and are awaited.

The Tata Group wants to have AI as the umbrella carriers with a full service arm formed by merging Vistara into the Maharaja and a low cost arm by merging AirAsia India (AAIPL) into AI Express.

Like AI Express and AAIPL, the merger of AI and Vistara will also require several clearances from agencies such as the Competition Commission of India (CCI) which is expected to take anywhere upto six months, say people in the know.

The one-year target factors in likely hiccups on the way. For instance, the Competition and Consumer Commission of Singapore (CCCS) had this June expressed concern over Tata acquiring AI as three related entities (AI, SIA and Vistara) now have a major presence on “overlapping passenger routes” — Delhi-Singapore and Mumbai-Singapore — apart from “overlapping cargo routes” between India and the city state. CCCS had then said “needs to assess further whether the competitive constraint from other (unrelated) airlines such as IndiGo would be sufficient post-transaction.

Accordingly, CCCS needs to further review the competition effects of the transaction in greater detail.”
SIA had last month confirmed being in talks with Tata Group for a “potential integration” of Vistara with AI. SIA had informed the Singapore Stock Exchange mid-October that “in line with its multi-hub strategy, SIA is currently in confidential discussions with Tata to explore a potential transaction in relation to the securities of Vistara and AI.… The discussions seek to deepen the existing partnership between SIA and Tata, and may include a potential integration of Vistara and Air India.”

The five-year turnaround plan finalised for AI envisages a market share of 30 per cent for the mega airline. This will be achieved through both the organic route by adding expanding fleet size and inorganically through the mergers of the four low cost and full service airlines.

Having a share in the aimed 30 per cent pie of the Indian skies is something that SIA — Tatas’ decades old airline partner with who the group wanted to acquire erstwhile Air India (international) at the start of this Millennium but the then Vajpayee government had shelved that proposed divestment — clearly does not want to miss out on.

SIA last month’s filing to the Singapore Stock Exchange had said as much: “The establishment of Vistara in 2013 gave the SIA Group a stake in India’s fast-growing aviation sector. India has strong domestic and international traffic flows, which is expected to more than double over the next 10 years. This is an integral part of the SIA Group’s multi-hub strategy, allowing it to get access to important sources that complement its strong Singapore hub.”

The Tatas are moving on AI integration with great speed now. Earlier this month, they had entered into a share purchase agreement with AirAsia Aviation Group Ltd to acquire its remaining 16.3 per cent stake in AAIPL for $18.8 million (Rs 155.6 crore). Soon after that announcement, AAIPL managing director and chief executive officer Sunil Bhaskaran had said in an internal note to employees that the LCC “is now a 100 per cent subsidiary of Air India.” CCI has already cleared this merger.

Without integrating all its airlines for scale, it would have been an uphill task for the Maharaja to reach its target of 30 per cent domestic market share. Once Tatas manage to do that — adequate domestic feed for filling wide bodies to rest of the world — they could have a winner on their hands.

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