Tata Group has officially announced the merger of Air India and Vistara by March 2024
What's happening: Tata and Sons owned Air India and Tata group-Singapore airlines' jointly owned Vistara is set to enter into a merger estimated to be completed in 2024.
The consolidation will make Air India the country's largest international carrier and second-largest domestic carrier in terms of fleet size, commanding over 200 aircraft.
The deal will also pose a significant challenge to smaller low-cost carriers such as Go First and SpiceJet, which may be forced to cut costs even further.
Who's involved: Vistara is a joint venture between Tata Group and Singapore Airlines, following the merger they will acquire a $250 million investment for a 25.1% stake in the combined entity.
Air India was once a symbol of national pride in India and was India's former national carrier which post the 2000's moved into losses.
The Indian government sold Air India to the Tata group as part of the its disinvestment strategy
Backdrop: In 2021, Tata Group paid the government $2.2 billion for the debt-ridden Air India.
The airline's demise was exacerbated by the rise of private, low-cost carriers in the 2000s.
As India's aviation industry became more competitive, Air India began to incur significant losses and was forced to rely on taxpayer-funded bailouts to stay afloat.
The revamped airline is looking to take on the same rivals all over again.
By the numbers: According to government estimates, India's civil aviation market is worth about $900 million and is expected to grow to more than $4 billion by 2025.
While there is opportunity in a growing market, it will be difficult to break through IndiGo's stranglehold.
Analysts believe IndiGo will be difficult to unseat because it controls more than 57% of India's domestic aviation market making it the third largest in the world.
Details: For a variety of reasons ranging from inflated deal values to skyrocketing operational losses, India has a long history of failed airline mergers, be it the Jet Airways-Air Sahara merger or the Kingfisher Airlines-Air Deccan merger.
If the Air India- vistas merger works out, it would not only allow the combined airlines to dominate the domestic flights industry but also undo the rich history of failed airline mergers.
Apart from these two airlines, the Tata group also owns AirAsia India, and the three airlines have a combined market share of more than 23%.
There is also Singapore Airlines' international clout and the funds it will invest in the entity.
Conclusion: While it is no longer in its prime, Air India still has advantages, such as prime time slots at domestic and international airports but despite that, the challenge will be not just to ensure financial gains, but also to restore Air India's battered reputation.