Background
At the beginning of 2022, the Indian government bid farewell to the national flag carrier, Air India Limited (“Air India”), along with the low-cost carrier known as Air Asia India (“AIX Connect/Air India Express”) and Air India SATS Airport Services Private Limited, which provides ground and cargo handling services. This decision came 68 years after the airline was nationalized post-independence. The move was made taking into account the mounting debt and to turn around the struggling airline. The Tata Group, through its wholly-owned subsidiary Talace Private Limited (“Talace”), successfully made a bid of Rs.18,000/- crores (approximately $2.3 billion).
This ignited a series of takeovers and mergers by the Tata Group of other low-cost carriers. First, the Group bought a stake in Air Asia India and merged it with Air India Express, and later, in November 2022, the Group announced the merger of Air India Limited and Tata SIA Airlines Limited (“TSAL/Vistara”). The proposed merger with Vistara, which is a joint venture between Tata Sons Private Ltd. (“TSPL”) and Singapore Airlines Limited (“SIA”), will result in Air India being the remaining entity. TSPL and SIA will have a stake in the merged entity as part of the consideration. SIA will invest around 2059 crores and will have a stake of 25.1% in the merged entity. Earlier, TSPL was holding 51%, and SIA was holding a 49% stake in Vistara. Ultimately, after the merger, the brand name Vistara will be dropped, and the airlines will operate under a single brand, i.e., Air India.
The current workforce of Vistara, which is around 6,000 strong along with its fleet of aircraft will be merged into Air India. The combined fleet capacity will rise to 218 aircraft. Post-merger, Air India will have the largest international operations and will become the second largest in the domestic market after Indigo. [1]
Legal landscape
The process of mergers and combinations has been well-defined in Indian jurisprudence. The Competition Act 2002 (“the Act”) has been framed to ensure that large corporations and investment firms do not monopolize or form a cartel in the market by reducing their profits conventionality or operating at a loss to squeeze out the competition.
Sections 5 & 6 of the Act regulate combinations, along with notifications from the Ministry of Corporate Affairs and the Competition Commission of India, together with the Competition Commission of India (Procedure regarding the transaction of business relating to combinations) Regulations, 2011 [2] form the framework for overseeing mergers in India. Moreover, under the Act, Section 20 deals with the power of the commission to inquire into combinations to see if they will have an adverse impact on the competition or whether the benefits of the combinations outweigh the adverse impact of the combinations, if any.
The nod of approval from CCI
The CCI approved the transaction on September 1, 2023. Vistara’s CEO, Mr. Vinod Kannan, has stated that all legal formalities will be completed by the middle of 2024, with the overall acquisition procedure concluding by the middle of 2025.
The merger has been given the go-ahead on certain voluntary commitments by Air India. The order of CCI [3] under Section 31 of the Act contains details of these commitments, which can be summarised as follows:
- Air India will maintain a minimum capacity/supply level on O&D (Origin & Destination) domestic routes to address the prima facie concern of the show cause notice [4] issued by the commission with respect to the 48 overlapping route pairs of Vistara and Air India for at least four financial years from the effective date of the merger.
- On various international routes, Air India will maintain operation at a minimum level for 24 route pair operations outside India on international routes for at least four financial years from the effective date of the merger.
- SIA will also maintain operations on the routes that overlap between India and Singapore. The international routes are identified to be Mumbai-Singapore, Tiruchirappalli-Singapore, Chennai-Singapore.
The above commitments were made after CCI raised concerns via a show cause notice to the parties to the merger. The main objective of the showcase notice issued by the commission is that parties who have a dominant position in specific routes will not misutilize their dominance and raise prices by reducing the number of flights. The commitments undertaken are also subject to certain limitations, without which the parties won’t be able to fulfil their obligations.
The ramifications on the domestic aviation market
The Indian domestic aviation market is characterized by a limited number of key players, including Indigo Airlines, SpiceJet, Air India, Go Air, Vistara, Air Asia India, Akasa Air, and Fly big, among others. Past instances, like the bankruptcy of Go First (formerly known as GoAir) and cases such as Jet Airways and Kingfisher, underscore external factors that can significantly impact an airline’s stability.
The merger of Air India and Air Asia India (AIX Connect/Air India Express) and the inclusion of Vistara under the Tata Group and its subsidiaries present a likelihood of creating a duopoly between Tata-owned airlines and IndiGo. This consolidation might lead to increased fare prices for customers, as a substantial portion of passengers and aircraft will be managed within this Group.
The Tata Group’s ambitious move, with orders exceeding 470 aircraft from major manufacturers like Boeing and Airbus, valued at over $70 billion, paints a clear picture of their grand vision for the airline. The five-year expansion plan named “Vihaan. Ai” aims to position Air India and its subsidiaries as dominant players in the Indian domestic market while capturing a significant share in international routes. Moreover, the commission has made a note in its orders that voluntary commitments from the merging parties address concerns regarding potential market abuse.
Hence, it can be inferred that the Competition Commission of India (CCI) may not have fully considered these factors. There remains a possibility that voluntary commitments could be disregarded, posing a significant issue post-merger. [5]
Conclusion
The viability of the merger between Air India and Vistara can only be considered over time as the merger unfolds. Presently, the merger is expected to bring positive benefits such as employment generation and an improved flight experience. However, CCI should have conducted more comprehensive investigations into Air India’s business and expansion plans before approving the merger, and the oversight of changes in the competitive landscape or potential impacts on competition in the aviation industry is a concern. As the aviation market evolves, it becomes crucial to strike a balance between encouraging expansion and maintaining a competitive environment.
Ultimately, the responsibility rests with regulatory bodies, industry stakeholders, and the merged businesses to ensure strong competition, affordable fares, and diverse travel options for consumers. The future success of the Indian aviation sector hinges on overcoming these obstacles and fostering a sustainable, consumer-centric environment. Continuous evaluation and adaptation of strategies are imperative to maintaining a thriving and competitive aviation market.
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[1] https://www.tata.com/newsroom/business/air-india-vistara-consolidation
[2] https://www.cci.gov.in/legal-framwork/regulations/3/0
[3] https://www.cci.gov.in/combination/order/details/order/1272/0/orders-section31
[4] Notice dated June 13, 2023, under Section 29(1) of the Competition Act, 2002.
This article is written and submitted by Aryan Gupta during his course of internship at B&B Associates LLP. Aryan is a 5th year B.Com. LL.B student at Khalsa College of Law, Amritsar.
