Three more flights, merge on cards?

0
[email protected]
Long before Tata Sons even showed interest in Air India, President N Chandrasekaran had outlined a plan for the aviation industry. He told TOI in 2019 that he would not be running a third airline besides Vistara and AirAsia India, unless they merge. This means that a merger of the aeronautical interests of Tata Sons, on the lines of consolidation initiated by Chandrasekaran in other segments such as food and defense, is on the agenda. But a person familiar with the thinking of Tata Sons said the integration of multiple aviation units will only be possible after the president modernizes the company.
“Air India has complexities – the onerous contracts, huge manpower and their employment contracts containing certain perks and benefits above industry standards etc. There are several issues that need to be carefully addressed before proceeding with the contract. consolidation, ”the person said. In addition, the acquisition of Air India comes with a provision prohibiting the new owner from transferring its shares directly or indirectly to any person for one year from the closing date of the transaction. However, a merger is permitted provided that the new owner owns more than 51% in the carrier during the one-year lock-in period. It will also have to issue 3% of Air India shares to employees under the terms of the agreement.
Air India served well one of the reasons Tata Sons bid, as the deal catapults the company to being India’s number one player on international routes and number two on national routes. Tata Sons got into Air India’s tender because it was looking for a solution for its small-scale aviation business. In the same 2019 interview, Chandrasekaran said he wanted to expand the company’s aviation business and needed to “find a solution” for it.
Since then, the dynamics of Tata Sons’ aviation business have changed. It had bought the Malaysian partner’s 33% stake in AirAsia India, bringing its stake to 84%. Tata Sons now has the option to purchase AirAsia’s remaining 16% from the low-cost carrier by next year. Once the share purchase is completed and the brand licensing agreement with AirAsia is completed, the company will offer a “white label service,” which could then be combined with Air India or Vistara, another person said.
The acquisition of Air India, however, put Vistara and its co-promoter Singapore Airlines in the spotlight. While Vistara was initially evaluating Air India, Singapore Airlines got cold feet as the pandemic strained its resources. Singapore was also concerned about the investment Air India would entail and the risks that would follow the acquisition.
In addition, there has been a conflict as Vistara, Singapore Airlines and Air India have competing full service business models on some domestic and international routes. The acquisition comes with a clause that Tata Sons will have to keep the Air India brand for a period of five years.
However, Singapore Airlines canceled the non-compete clause in Vistara’s contract, allowing Tata Sons to participate in Air India’s auctions. But the island city-state is unsure of consolidation right now and is in hold mode. “Singapore would like to wait and see how Tata Sons’ aviation business unfolds. He could then decide to be part of his consolidation story, ”said a third source. At this time, it’s unclear what Tata Sons’ branded architecture plan is for the aviation industry. It will have five brands – Air India, Air India Express, Indian Airlines, AirAsia India and Vistara – in its portfolio following the acquisition of Air India.
Thomas Kuruvilla, managing partner of consulting firm Arthur D Little, believes the company may have multiple brands for different segments. “Tata Sons could play the role of a well-known aviation practice used in other parts of the world – mainly Europe and Asia-Pacific – by deploying different products under multiple brands for different market segments. India is a huge market with a differentiated demand structure – from domestic volume markets to luxury and business long-haul routes to labor markets and religious trafficking. Tata Sons could surely reduce costs and investments by optimizing its networks, fleets, landing and parking slots and ground services, among others, ”he said.


Source link

Share.

Leave A Reply