Thursday, November 15, 2018

What Vistara and Jet Airways merger means for Indian aviation

The Tatas have begun due diligence of Jet Airways’ books in a bid to possibly purchase a majority stake in the airline. While contours of any such deal are not yet known with any certainty, it is being speculated that Vistara, the Tata-Singapore Airlines JV in which the Tatas own 51 percent stake, will likely be merged with Jet Airways. This may or may not happen and there are strong reasons for either scenario.

First, the positives of such a merger. Vistara and Jet Airways merger will create the biggest full service airline (FSC) in India, with Air India the only other remaining FSC and not in a very sound financial state at that. The merged entity would be able to command the FSC traffic, which has been growing at about 10 percent (slower than the growth in low-cost carriers (LCCs) at close to 20 percent). The combined entity gets close to 20 percent share of the domestic market, slots at premium airports including Mumbai and Delhi and this merger will provide Tatas the much needed heft in the aviation business.

Additionally, it brings in 14 percent international share of traffic that Jet already has to the table – remember, Vistara has had international ambitions for long but does not have the required fleet to fulfill these on any scale just now. (The amended overseas flying norms dictate that only the 21st aircraft from an airline’s fleet can be deployed on international routes). Jet has been a strong international player and even in the September quarter, when its domestic business lost over 5 percent in revenue, its international business reported over 17 percent growth in topline. Almost 60 percent of Jet’s topline comes from the international business.

So, a merger of Jet with Vistara would be helpful not just for the Tatas’ persistent attempts to become a meaningful player in the Indian aviation market but also offer international wings to Vistara.  A source close to developments, however, said that the merger, if at all it were to happen, will be a decision for later.

“Right now, the energies of the Tatas are concentrated on evaluating Jet’s books and a merger is not on the horizon. This is why Singapore Airlines (the 49 percent partner in Vistara) has not yet made its comments known on the Tata-Jet deal,” this person said.
15/11/18 Sindhu Bhattacharya/CNBC TV18