Tata's Grand Vision: Air India and Vistara Integration Expecting a Paradigm Shift in the Aviation Industry

Introduction

Merger & Acquisitions (M&A) is a trending corporate strategy to integrate existing strengths and weaknesses and a step towards cumulative growth of both enterprises. The airline industry being a cyclic nature of business, historically faced various challenges including economic downturns, operating costs, cutthroat competition, customer dissatisfaction, legal disputes, compensation for delays, damages, and quality of services offered. Scheme of merger assists in balancing out financial instability, efficiency and improved performance. Let’s understand the latest anticipated merger deal between Air India & Vistara.

Merger Deal- Air India & Vistara

Tata Group bolstered its position in the Aviation sector first, consolidating its two low-cost carriers i.e. Air India and AIX Connect (formerly, Air Asia India) and commanding a lead as full-service carrier and a low-cost carrier respectively. The integration with Vistara (Now) aimed at gaining a competition edge over market players especially, IndiGo. Singapore Airlines Limited (SIA) is also slated to own a significant stake of 25.1% in partnership with Tata Sons’ Private Limited in the newly formed entity. After post merger, Air India with its comprehensive domestic network expanded its reach globally, evolving into a significant international airline with a presence spanning the USA, Canada, UK, Europe, Far-East, South-East Asia, Australia, and the Gulf. Air India proudly holds membership in Star Alliance, the world's largest airline consortium.

The merger process involves the following steps:

1. Valuation & Negotiation- For better negotiation with Target Company, it is essential to develop valuation models with comprehensive information and determine the exchange ratio of shares or other considerations in the merger.

2. Letter of Intent- It ensures both parties have mutually agreed on the exclusive purchasing rights, price and other terms.

3. Due Diligence- Both companies investigate and analyze every aspect of each other’s company’s operations, including financial measurements, assets and liabilities, customers, and human resources. This step is crucial to understanding the risks and benefits of the merger.

4. Inspecting AOA, MOA- determine whether or not the power of the merger and/or acquisition in India is endowed in MOA within the object clause of the companies.

5. Approvals- Including Shareholder's and Director’s approval, the Competition Commission of India (CCI) approved the merger and the Competition and Consumer Commission of Singapore (CCS) also granted its conditional approval to the proposed merger between Air India and Vistara. However, the Approval of DPIIT (Department for Promotion of Industry and Internal Trade), and NCLT (National Company Law Tribunal) is still pending.

6. Drafting & Filling of Merger Proposal- The drafted Merger proposal is to be filled with an application in the High Court of the respective jurisdiction. It must be documented with ROC.

7. Notification to Stock Exchange- To notify the proposed merger and acquisition, along with necessary documents, such as resolutions, notices, and orders, within the prescribed time limit. After that newly formed enterprise may Issue of Share &Debentures unified.

8. Implementation- after NCLT approval, the merger is implemented as per the scheme, including the transfer of assets, liabilities, and issuance of shares.

Role of Merger as Integration Strategy in the Airline Industry

• Financial Stability: Airline being is capital-intensive industry, it contributes to financial stability by combining resources, reducing financial risks, and achieving better access to capital markets.

• Competitive Advantage: Merged airlines may gain a competitive advantage over smaller carriers by offering a broader range of services, more extensive flight schedules, and improved customer loyalty programs.

• Fleet Rationalization: Mergers often lead to the rationalization of fleets, where redundant or less fuel-efficient aircraft are retired, and the fleet is optimized for greater efficiency.

• Improved Service Quality: Merged airlines may invest in upgrading facilities, services, and technology, leading to improved overall customer experience and satisfaction.

• Global Alliances and Partnerships: Merged airlines may strengthen or establish new global alliances and partnerships, expanding their reach and providing passengers with access to a broader network of destinations.

• Employee Integration: Merging airlines need to address the integration of employees from both companies, including workforce redundancies, cultural differences, and labour union considerations.

• Increased Market Share: Merged airlines often gain a larger market share, allowing them to have a stronger presence in specific regions or routes.

• Cost Synergies: Mergers can generate cost synergies through economies of scale. Combined operations may lead to reduced overhead costs, joint purchasing power, and optimized route networks, contributing to overall operational efficiency.

Conclusion

To conclude, Mergers and Acquisitions in India appear to be one of the most booming methods to conquer different business obstacles and boost business growth. Currently, Air India and Vistara merger reflects a strategic response to the challenges and opportunities in the airline industry. If successfully executed, the combined entity is well-positioned to navigate the competitive landscape, capitalize on synergies, and provide enhanced services to customers globally. As with any merger, the ultimate success will depend on effective integration, stakeholder management, and the ability to realize the anticipated benefits in the long run.