The 'Maharaja', Air India Ltd., has merged Vistara Airlines with itself, completing the two-year tedious merger process that saw merging three airlines to form the country's only full service and low-cost airline.
The completion of the merger comes into effect with joint venture partner Singapore Airlines infusing Rs 3,194.5 crore into the merged airline to acquire a 25.1% equity on a fully diluted basis.
Based on the NDTV profit calculations, Air India is valued at Rs 56,043 crore at fund infusion. To put this in context, InterGlobe Aviation Ltd., which owns IndiGo, is valued at approximately Rs 1.5 lakh crore.
The infusion of equity is lower than what was envisaged at the time of announcement in November 2022.
The merger required Air India to issue up to 19.4% equity in lieu of 49% equity SIA held in Vistara. In addition, SIA had agreed to infuse additional equity of up to Rs 5,020 crore. This amount included Rs 2,058.5 crore for 5.7% additional equity to take its equity to 25.10% in the fully merged entity.
SIA, along with Tata Sons, had agreed on capital infusion into Air India for financial years 2023 and 2024 on a pro-rata basis to fund growth operations of enlarged Air India.
Prior to completion of the proposed merger, Tata Sons will provide such funding, via convertible securities to be issued by Air India. Post-completion of the merger, SIA, Tata Sons and AI have agreed that SIA will contribute its share of any funding previously provided by Tata Sons prior to the completion of the merger, together with relevant funding costs, through subscription by SIA of additional new fully paid equity shares of Air India to be allotted and issued by the airline, such that stake of SIA is capped at 25.10%
According to the scheme of merger, Tata Sons will simultaneously redeem or convert its previously issued convertible securities, such that SIA maintains a 25.1% interest in the merged airline.
Tata Sons has invested Rs 8,800 crore in the last two fiscals in the form of optionally convertible non-cumulative redeemable preference shares. A part of this will be redeemed by Tata Sons at the time of merger with Vistara and ahead of the SIA equity infusion.
According to Crisil Ratings, Air India is also expected to receive additional equity infusion over fiscals 2025 to 2027. Despite this, the credit ratings agency believes that net debt is expected to rise in the near term on account of the increase in lease liabilities owing to the fleet expansion as well as the proposed capital expenditure towards refurbishment, spare engines and capital advances for purchase of aircraft.
Also Read: Air Vistara — An Aviation Icon Fades Away
During fiscal 2024, consolidated revenue for Air India, including Vistara, grew 25% to Rs 66,800 crore. Consolidated operating margin for the airline, including Vistara, improved to 3.4% from negative 2.3% in fiscal 2023, backed by capacity expansion across its network, firm passenger yields and lower fuel costs. The consolidated merged entity continues to be loss-making in the last fiscal with net loss of Rs 7,273.1 crore, which is half of what it posted in the previous year.
In comparison, in fiscal 2023, the merged airline had a revenue of Rs 53,522 crore and loss of Rs 15,360 crore on a pro-forma basis.
Air India has high financial flexibility, supported by the strong parentage of Tata Sons. On a consolidated basis, including Vistara, the airlines had cash and equivalents of over Rs 11,707 crore, apart from unutilised limits of around Rs 6,000 crore as on March 31, 2024. Cash accrual and healthy liquidity should be sufficient to service debt over the medium term, according to Crisil.
The Air India group had a market share of nearly 23% in the April–July period in the international traffic originating from, terminating at and transitioning through India and approximately 29% share in the domestic operations in terms of passengers carried during the same period.
Tata Sons and SIA will together own 97% in the merged entity with the remaining 3% to be held by the ESOP Trust to be created free of cost as per the shareholder agreement with the Union government.
Tata Sons and SIA are looking to turn around the loss-making airline. Air India announced at the Paris Air Show in June 2023 that it has ordered 250 new Airbus and 220 new Boeing aircraft worth $70 billion at list prices. While the deliveries of the Airbus have started, the bulk of the order will arrive starting mid-2025.
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