Vistara-Air India merger: The city-state's flagship carrier is now a serious contender in a market it badly wanted for decades. But a smooth takeoff is far from assured
For decades, Singapore Airlines Limited has been seeking a leading position in India, which is set to become the world's third largest aviation market by the middle of the decade, if not sooner. Now that the opportunity to own 25% of the country's largest international and second largest local carrier is knocking, Chief Executive Goh Choon Fong is happy to write a check for $250 million.
But India's siren song can be treacherous too. Its highly regulated sectors, such as telecommunications and aviation, have a history of being unpredictable. Singapore Telecommunications Limited was fortunate in its choice of partner. After years of intense upheaval, Bharti Airtel Limited remains a solid No. 2 in the Indian wireless market. Goh would expect the same stability from his partner, the 154-year-old Tata Group - perhaps even more, given the aviation industry's natural tendency to burn up capital.
Although all this is in the future. Now, it's time to shake hands. Vistara, a joint venture between Tata Group and SIA, is being merged with Air India. The loss-making national carrier went to a local group when New Delhi sold it off last year. Now, Tatas will hold 74.9% of the merged entity; Singapore Air will pay a little over $250 million for 25.1%. An expansion is also in the cards. Air India CEO Campbell Wilson - veteran of Singapore Air - wants to triple its fleet in five years. The purchase, which is one of the most aggressive in the industry since the pandemic, could add another $615 million to SIA's investment. The Indian side will bring proportionately more.
Covid-19 has underlined the danger of relying too heavily on a single market. A multi-hub strategy, in which Singapore Air-owned airlines would benefit from demand outside the small city-state, may not offer foolproof insurance against a global pandemic when everything shuts down at once. But it does offer risk mitigation in the reopening phase. The company has triple-A-rated government backing and was lucky: executives in its home market were keen to lift travel restrictions as quickly as possible. Hong Kong-based rival Cathay Pacific Airways Ltd and Chinese carriers were not as lucky. As a result, SIA is in an expansionary, deal-making mode, while Cathay is now only seeing "a bright light at the end of the tunnel".
Wilson, a New Zealand native, is new to both the job and the locality - he arrived in June as the first foreign-born boss in Air India's history. Even as he completes the merger with Vistara, his two shareholders will look to him to replicate his success at Singapore's short-haul carrier Scoot. The immediate task is to shake off InterGlobe Aviation Ltd's IndiGo, which has a 57% share of India's domestic aviation market. Middle East carriers such as Emirates and Etihad Airways PJSC travel to and from the country through their hubs in Dubai and Abu Dhabi respectively.
Wilson's other challenge will be managing different cultures. As a 75% shareholder, Ratan Tata, the group's patriarch, wants his executives to be in the cockpit, if not the pilot's seat. After all, a more passive approach hasn't gotten the 84-year-old aviation enthusiast anywhere. Even before the virus outbreak, the $128 billion conglomerate had been spectacularly unsuccessful in making money from two ventures launched in the middle of the last decade -- Vistara, a full-service carrier targeting frequent business travelers, and AirAsia India, a no-frills airline owned by Malaysian tycoon Tony Fernandes' AirAsia Group Bhd. Tata owned 51% in both, but the partners called the shots.
This time the way of management may be different. But whether the outcome is more beneficial - for both Tata and Singapore Air - will depend crucially on how local partners navigate the policy landscape. This is where big potholes can lurk on the runway.
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