The Tata Group hopes to develop Air India as an umbrella carrier through the merger of Air India with Vistara and AirAsia India with Air India Express.

The Tata group has finalized the merger of Air India and Vistara. Reportedly, Tata group and Singapore Airlines, the joint owners of Vistara, have agreed to the merger.

SIA will invest $250 million into Air India as part of the transaction, the Singaporean carrier said in a statement, with the pair aiming to complete the merger by March 2024 subject to regulatory approvals.

Once that happens, Tatas will hold 74.9% stake in the AI-Vistara-AI Express-AirAsia India Pvt Ltd (AAIPL) combined entity and SIA the remaining 25.1% stake.

Tata group currently operates four airlines, Air India, it’s subsidiary Air India Express, Vistara, and Air Asia India. Among them, Air India and Vistara are full-service operators, while AirAsia India and AI Express as low-cost carriers.

This move will make Air India the second-largest airline in India in terms of fleet and market share. Eventually, the merged entity of Air India-Vistara will be a full-service airline, and the merged entity of AirAsia India-Air India Express will become the low-cost arm of the group.

SIA and Tata have also agreed to participate in additional capital injection to fund the growth and operations of the enlarged Air India in FY2022-23 and FY2023-24.

Based on SIA’s 25.1% stake post-completion, its share of any additional capital injection could be up to $615 million, payable only after the completion of the merger.

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

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

SIA said it and Tata had agreed to participate in additional capital injections in Air India if required to fund growth and operations over the next two financial years.

SIA Chief Executive Gh Choon Phong said,”We will work together to support Air India’s transformation programme, unlock its significant potential, and restore it to its position as a leading airline on the global stage.”