Tata Group Approaches Competition Commission For Air India - Vistara Merger
20 Apr 2023
20 Apr 2023
Tata Group has sought the fair-trade regulator Competition Commission of India's (CCI) approval on the deal to merge its full-service carriers Vistara and Air India. Tata SIA Airlines Ltd (TSAL) is a joint venture between Tata Sons Pvt Ltd (TSPL) and Singapore Airlines (SIA), with Tata Sons and SIA having 51% and 49% stakes, respectively. TSAL operates under the brand name Vistara.
"The proposed combination relates to the merger of TSAL (Vistara) into Air India Ltd (AIL), with Air India being the surviving entity and the acquisition of shares in the merged entity by SIA and TSPL. Acquisition of additional shares in the merged entity by SIA under a preferential allotment," a notice filed with CCI said.
Post completion of the deal, TSPL will hold 51% equity of the merged entity and will continue to retain control over Air India and its subsidiaries, whereas SIA will be holding a minority — 25.1% stake in the entity. The notice said that the proposed transaction involves a merger and an acquisition of shares and is notifiable under Section 5 of the Competition Act, 2002.
In November last year, Tata Group announced the merger of Vistara with Air India under a deal wherein Singapore Airlines will also acquire a 25.1% stake in Air India. Tata Group Chairman N Chandrasekaran said in November that the merger was an important milestone in efforts to rebuild Air India into a "world-class airline". CEO Campbell Wilson later announced that Air India will let go of the Vistara brand after the merger process gets completed.
It also said that an operational review process was underway to integrate AIX Connect (formerly known as AirAsia India) with Air India Express and the merger was likely by the end of 2023. The merger aims to have a single low-cost carrier for the Air India group. Post-merger, the entity will be branded as 'Air India Express'.
The deal will make Air India the country's largest international carrier and second-largest domestic carrier. TSPL is an investment holding company having direct and indirect shareholding and control over Air India Ltd and its subsidiaries.
Last year, CCI approved the acquisition of the entire shareholding of AirAsia India Ltd by Air India Ltd. The proposed transaction will not change the competitive landscape or cause any appreciable adverse effect on competition in India, Tata Group said in the notice.
‘Horizontal Overlaps’ In The Merger
However, the notice pointed out ‘horizontal overlaps’ in areas such as the “market for domestic passenger air transport services in India; the market for international passenger air transport services in India; the market for the provision of air cargo transport services in India; and market for the provision of charter flight services in India”.
Besides, the notice cited ‘vertical relationships’ such as the upstream market for ground handling services at the Bengaluru, Delhi, Hyderabad and Thiruvananthapuram airports. “The downstream market for passenger air transport services at Bengaluru, Delhi, Hyderabad and Thiruvananthapuram airports; and the upstream market for in-flight catering services in India; the downstream market for passenger air transport services in India.”
Recently, Air India placed a historic order of 470 Aircraft with Boeing and Airbus. The Tata Group airline placed an order of 190 Boeing 737 Max aircraft, 20 B787 & 10 B777X. It has also placed an order for 40 Airbus A350s & 210 A320neo.
Market Share of Tata-Owned Airlines
According to DGCA data, Tata Group has a cumulative market share of 25.3% which includes a market share of 8.9% of Vistara, 8.8% of Air India & 7.6% of AirAsia India. The combined market share is the second largest player in the country’s aviation market, after market leader Indigo.
Air India and Vistara's market share stood at 18.3% in October. If AirAsia India (now known as AIX Connect) is also included, then the cumulative market share of Tata group-owned airlines in the domestic market will be 25.9%. Individually, AirAsia India's domestic market share was at 7.6%.
The International Air Transport Association (IATA) has reported that owing to supply delays and a dearth of spare parts caused by the COVID-19 epidemic, airlines worldwide will continue to suffer capacity limits until 2025. The epidemic has resulted in a considerable decrease in air traffic, which has impacted airline supply chains and industrial operations, according to IATA Director General Willie Walsh. To escape the economic impact of the epidemic, airlines have been forced to cancel flights, halt flights, and lay off employees. But the pandemic's influence on the airline sector extends beyond passenger demand and flight cancellations. As a result, airlines are experiencing a lack of aircraft, engines, and spare parts, resulting in capacity limitations that are projected to endure for the foreseeable future.
Airplane makers Boeing Inc. and Airbus are under widespread pressure due to supply chain bottlenecks, which are causing delivery delays, according to Walsh, who also stated that airline executives were informing him there were not enough replacement parts, particularly for engines. "I don't see things truly changing or considerably improving until 2025 at the earliest, and it may even go beyond that," Walsh told Reuters on Wednesday on the margins of a conference in Dublin. Airlines predict travel demand to rise to 2019 levels or higher this year, seeking to leave years of pandemic restrictions behind them, but a dearth of planes to match demand might stymie growth. "That implies capacity will be slightly lower than the industry had predicted," Walsh explained, adding that he expects the drop to be in the low single digits this year.
Boeing announced a new supplier-related pause to 737 deliveries last week, while industry insiders say Airbus has begun warning airlines about delivery delays for its best-selling A320neo family of planes in 2024. Ryanair, Europe's largest airline, warned on Wednesday that it will reduce its July schedule owing to the expected delay of 10 Boeing 737 MAX aircraft due to production concerns. Walsh stated that he does not anticipate airport disruptions this summer. Last year, labor shortages and an unexpected increase in demand following COVID-19 in Europe led airlines to cancel huge numbers of flights and reduce capacity. "I don't think it'll be a catastrophe because what we're seeing now is airlines modifying their capacity early enough to deal with these last-minute concerns," he added. When asked about the chances for sustainable aviation fuel, which airlines rely on to fulfil net-zero requirements, Walsh stated that Europe will lose out to the United States owing to the Inflation Reduction Act's incentives.
The Effects of COVID-19 on the Aviation Industry
The COVID-19 epidemic has reduced air travel demand significantly, resulting in lower airline revenues. The influence of the pandemic on the aviation sector may be observed in the following ways:
Reduced Passenger Demand: Travel limitations, quarantine, and the fear of catching a disease COVID-19 has considerably lowered air travel passenger demand. As a result, airlines have had to decrease flight schedules, stop planes, and lay off employees.
Supply Chain Process Disruption: The COVID-19 epidemic has hampered supply chain procedures in the aviation sector. The production and distribution of aircraft, engines, and spare parts have been severely hampered, resulting in supply delays and shortages.
Financial Setbacks: Airline's worldwide have suffered considerable financial losses as a result of the COVID-19 epidemic. According to the International Air Transport Association (IATA), the airline sector lost $118.5 billion in 2020 alone.
Airline Capacity Impacted by Delivery Delays and Spare Parts Shortages
The COVID-19 pandemic's disruption of supply chain procedures has resulted in major delivery delays and spare component shortages. As a result, airlines are experiencing a lack of aircraft, engines, and spare parts, resulting in capacity limitations that are projected to endure for the foreseeable future.
Delays in Delivery: The pandemic of COVID-19 has created substantial delivery delays in the aviation sector. Due to production and logistical delays, airlines have been waiting for months to get their new aircraft, engines, and spare components. These delays have impacted airline operations, resulting in lower capacity and revenue.
Spare Parts Scarcity: The epidemic has also resulted in a lack of spare parts in the aviation sector. The manufacture and delivery of spare parts have been hampered, resulting in a lack of critical parts for aircraft maintenance and repair. Airlines are finding it difficult to repair their existing aircraft, resulting in a reduction in capacity and income.
Airline Capacity in the Future
The IATA has indicated that owing to supply delays and spare component shortages caused by the COVID-19 epidemic, airlines worldwide will continue to suffer capacity limitations until 2025. The rehabilitation of the aviation sector from the epidemic will take time, and airlines will need to adjust to the new normal in order to survive.
The Aviation Industry's Innovation
To survive, the aviation sector must innovate and adapt to the new normal. To earn money, airlines are required to invest in more efficient and sustainable aircraft and seek new markets. Airlines are also anticipated to embrace new technologies such as artificial intelligence, big data, and blockchain.
The aviation industry's capacity bottlenecks are a serious problem that will require a collaborative effort from governments, airlines, and suppliers to solve. While the industry has made headway in resolving some of the underlying concerns, much more work needs to be done to guarantee that airlines have the capacity needed to fulfil the rising demand for air travel. Governments must act to support the business and make the required investments to maintain the long-term viability of air travel.
With Inputs from Reuters
Jet Airways' Owners Haven't Paid Dues To Creditors, Deadline In Less Than A Month
The consortium of Dubai-based entrepreneur Murari Lal Jalan and the UK's Kalrock Capital, whose revival plan for Jet Airways had received the regulatory go-ahead, is yet to make payments to the grounded airline's creditors, CNBC TV-18 reported on April 18, citing sources. The consortium, whose resolution plan had come into effect on November 16 last year, has to settle the dues of creditors within six months from the date.
According to persons privy to the development, the consortium has to pay INR 225 crore towards the provident fund and gratuity of the airline's employees by May 13. The Jalan-Kalrock consortium is also required to clear a payment of INR 270 crore to the lenders of the carrier by May 13, the sources further told CNBC TV-18. The airline's ownership will not be given to the consortium if the outstanding payments are not cleared. The air operator's certificate of Jet Airways is also scheduled to expire on May 19.
The Story so far
Notably, Jet Airways was grounded in April 2019 over piling losses and debt of about INR 8,000 crore. In October 2020, the airline's Committee of Creditors (CoC) approved the revival plan submitted by the Jalan-Kalrock consortium.
In January this year, lenders of the airline approached the National Company Law Appellate Tribunal (NCLAT) as they opposed the ownership transfer to the consortium. Their plea came in response to an earlier order issued by the National Company Law Tribunal (NCLT), which noted that the consortium had satisfied the conditions necessary for the ownership transfer.
Ashish Chhawchharia, a member of Jet Airways' monitoring committee had on January 2 sent a letter to the consortium, wherein he objected to Sanjiv Kapoor using the designation of Jet Airways CEO as the airline is yet to be handed over to the consortium under the resolution plan.
In March last year, aviation veteran Kapoor was appointed as the CEO of grounded Jet Airways by JKC. The monitoring committee consists of seven members: Chhawchharia as a non-voting member, three voting members selected by lenders and three voting members selected by the consortium. The resolution process had been marred by differences between the lenders and the Jalan-Kalrock consortium over payments and additional liability of PF & gratuity payment.
JKC had 180 days to pay creditors & employees
Another report by The Financial Express suggests that the NCLT-defined deadline of 180 days for the Jalan-Kalrock Consortium (JKC) to pay the creditors and employees of the erstwhile Jet Airways will get exhausted in less than four weeks even as the issue of ownership transfer of the airline lingers on.
JKC has to pay INR 185 crore to the lenders of the grounded airline in addition to payments, estimated to be around INR 250 crore, due to the airline’s former employees by May 14. The January 13, 2023, order of the National Company Law Tribunal (NCLT) stated that JKC had fulfilled all the conditions precedent mentioned in the resolution plan, paving the way for the transfer of ownership of the airline from the lenders to the winning bidder.
Dublin headquartered aircraft leasing specialist Avolon has delivered 15 A320neo aircraft to Indian carrier Vistara. The airline, which is a joint venture between TATA Sons and Singapore Airlines, operates from Delhi and flies to destinations including London Heathrow and Paris.
Paul Geaney, President and Chief Commercial Officer, Avolon commented: “We are delighted to have completed this delivery of 15 fuel-efficient new technology aircraft to Vistara. The rapidly growing Indian aviation market is benefitting from Vistara’s continued success and we welcome the opportunity to have supported this expansion of their A320neo fleet.”
Deepak Rajawat, Chief Commercial Officer, Vistara added: “A modern and efficient fleet is the backbone of any airline operations and enables consistent growth. We are pleased to have worked with Avolon on the delivery of these 15 aircraft which enabled us to continue our expansion and offer greater connectivity to our customers.”
The wings of the Airbus A320neo family are built in North Wales at Airbus’ Wing Manufacturing Facility at Broughton. The Airbus A320 family of aircraft is known for its efficiency, reliability, and comfort, making it a popular choice for airlines around the world. The A320neo, in particular, is equipped with the latest technology, including new-generation engines and advanced aerodynamics, which significantly reduce fuel consumption and emissions.
Vistara commenced its commercial operations on January 9, 2015, to set new standards in the aviation industry in India and it today connects destinations across India and abroad. The airline currently has a fleet of 59 aircraft, including 45 Airbus A320neo, 8 Airbus A321, 2 Boeing 737-800NG and 4 Boeing 787-9 Dreamliner and has flown more than 45 million customers since starting operations.
Vistara and Air India merger
The latest delivery to Vistara further advances Tata Group’s overarching plan to upgrade and modernise its fleet, as it moves towards the ultimate merger of its full-service carriers Vistara and Air India. Formally announced by the group in November last year, the two airline merger intends to create India’s leading domestic and international carrier. Once amalgamated under the Air India brand, the plan is for the full-service carrier to operate a combined fleet of 218 aircraft.
The goal is for Vistara to be merged with Air India after receiving the requisite approvals. As part of the merger transaction, SIA shall also invest Rs 2,059 crore in Air India. After the consolidation, SIA will maintain a 25.1% shareholding in Air India. The stated timeframe for the merger process is completion by March 2024.
Speaking at the time of the announced merger, Mr N Chandrasekaran, Chairman, Tata Sons had ventured: “The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline. We are transforming Air India, to provide a great customer experience, every time, for every customer.” “As part of the transformation, Air India is focusing on growing both its network and fleet, revamping its customer proposition, enhancing safety, reliability, and on-time performance,” he stated.
Post Merger Plans
Air India will absorb all 5,100 Vistara employees as part of the merger plan to consolidate the number of airlines under the Tata group to two from four, Vistara’s chief executive Vinod Kannan said. With the merger of the two airlines, all 5,000+ Vistara employees would be able to find employment with Air India. In an interview at the CAPA Aviation Summit in New Delhi, Vistara's CEO Vinod Kannan stated, "There would be chances for everyone in the greater entity. They will all be included in the new amalgamated business.
Kannan further emphasised that nearly 80% of Vistara's employees hold operational positions. They include, among others, pilots, flight attendants, and engineers. All personnel will undergo a transition as Vistara's aircraft eventually merge with Air India's fleet.
In January, Vistara announced that it would not be ordering any new aircraft ahead of its proposed merger with Air India. The airline did clarify that it will continue to honour its existing aircraft orders, the bulk of which will be put towards further international expansion. The airline still has close to 10 Airbus A320s to be delivered and four more Boeing 787-9 airplanes, the deliveries of which should be completed by the end of 2024. By then, however, Vistara's brand will most likely cease to exist following its merger with Air India, and all the new aircraft will contribute to the merged entity's business operations.
Headquartered in Ireland, with offices in the United States, Dubai, Singapore, Hong Kong and Shanghai, Avolon provides aircraft leasing and lease management services. Avolon is 70% owned by an indirect subsidiary of Bohai Leasing Co., Ltd., a public company listed on the Shenzhen Stock Exchange (SLE: 000415) and 30% owned by ORIX Aviation Systems, a subsidiary of ORIX Corporation which is listed on the Tokyo and New York Stock Exchanges (TSE: 8591; NYSE: IX). Avolon is a global leader in aircraft leasing with an owned, managed and committed fleet, as of 31 March 2023 of 830 aircraft. Learn more at www.avolon.aero
Malaysia Airlines Group (MAG) and Malaysia Airlines Berhad (MAB) achieved their best fourth-quarter performance in two decades, as well as a considerable reduction in full-year net loss year on year. According to an April 18 statement, the airline is hopeful about this year, particularly because China and North Asia are rebounding well. Malaysia Airlines decreases losses following a good fourth quarter. Furthermore, the airline anticipates that capacity throughout its network will approach pre-pandemic levels by the end of 2023.
Recovering From COVID-19
The COVID-19 pandemic has had a significant impact on the aviation sector, with airlines worldwide reporting losses owing to decreased travel demand. Malaysia Airlines, for example, posted a $1.2 billion deficit in 2020. Nonetheless, with the implementation of immunization programmes and the relaxation of travel restrictions, there has been a steady rebound in travel demand. This has aided Malaysia Airlines in increasing revenue and decreasing losses.
Measures to Reduce Costs
Malaysia Airlines has adopted a number of cost-cutting initiatives in order to alleviate the effects of the epidemic. They include lowering employee pay, giving voluntary resignation plans, and renegotiating contracts with suppliers. The airline has also decreased the size of its aircraft and discontinued routes that were not profitable. These initiatives have aided in the reduction of operational expenses and the improvement of the airline's financial performance.
Malaysia Airlines has gone through considerable reorganization in recent years, culminating in the hiring of a new CEO, Izham Ismail, in 2019. During his leadership, the airline has prioritised operational efficiency and customer satisfaction. For example, the airline has implemented a new revenue management system that has aided in the optimisation of pricing and seat allocation. In addition, the airline has invested in new technology, such as a new customer service platform, which has enhanced the entire customer experience.
Malaysia Airlines has received financial help and assurances from the Malaysian government. The government invested RM 6 billion ($1.4 billion) in the airline in 2019 to assist with restructuring and improving financial performance. Furthermore, the government has issued guarantees for the airline's borrowings, allowing it to get finance at advantageous terms.
Deficit to Profit
The Malaysia Aviation Group saw a major financial turnaround last year, with an operating profit of around RM556 million ($125 million), substantially reversing the RM767 million ($173 million) operating deficit reported in 2021. Despite increasing gasoline prices, labor expenses, and a weaker currency, the company returned to profitability. Notwithstanding the fact that flying capacity levels were substantially lower last year compared to pre-pandemic levels, Malaysia Aviation Group attributes its profitability to strong demand, greater yield across passenger and cargo business categories, and excellent cost management with cash flow optimization's. Profits for the whole year were also boosted by improvements in all other business segments. Despite a modest slowdown in global freight demand, Malaysia Airlines' overall income increased compared to 2021, driven by stronger foreign demand for both commercial passenger travel and cargo freight.
While the Malaysia Aviation Group could not provide figures, it did state that the flag carrier handled around 9.9 million passengers last year, compared to 1.7 million in 2021. Passenger load factor increased from 46% to 75%. The capacity to reach specified locations has also been expanded. Malaysia Airlines, for example, has added a second daily nonstop service between Kuala Lumpur International Airport and Doha Hamad International Airport in collaboration with Qatar Airways. This expansion helps Malaysia Airlines expand its network and connect to new locations in North America, Europe, and Africa. The oneworld alliance member is now running at 85% of pre-pandemic capacity and expects to recover to full capacity in China and North Asia by the end of June. It anticipates that full network capacity will be restored by the end of this year. Malaysia continues to update its fleet, with the first four Boeing MAX 8s on lease from Air Lease Company (ALC) expected in Q3. The airline agreed to a long-term lease with ALC for 25 MAX 8s. In 2024, the airline will get its first Airbus A330-900. It ordered 10 of them in August, but they are part of a sale and leaseback agreement with Avolon, along with ten more on lease from the Irish lessor.
Firefly is a Longways Away
While the majority of Malaysia Aviation Group's operations had excellent turnarounds, the same could not be true for its low-cost subsidiary Firefly. The airline was unprofitable for the whole year due to lower yield and demand for both ATR and jet operations. The Group, on the other hand, is not too concerned about the low-cost airline falling behind. There is no need to be concerned since, in accordance with the Malaysia Aviation Group's Long-Term Business Plan 2.0, Malaysia Airlines will transfer all intra-East Malaysia services to the low-cost carrier beginning May 16th. This implies that the flag carrier will only fly between East Malaysia and Peninsular Malaysia, as well as internal flights within Malaysia. Firefly will use Boeing 737-800s on these rerouted domestic routes, with daily flights available. In comparison to Malaysia Airlines' prior schedules of two to five weekly flights on identical aircraft, the low-cost carrier's daily flights indicate a significant capacity expansion that would presumably raise its revenue statistics.
Finally, Malaysia Airlines' financial comeback is a good omen for the aviation sector, which has been severely impacted by the COVID-19 outbreak. The airline's financial performance has improved dramatically as a result of cost-cutting initiatives, effective management, government backing, and recovering travel demand. Malaysia Airlines is well-positioned to continue on its path to recovery and prosperity, with future plans for development and investment in new technologies.
With Inputs from AirInsight