SINGAPORE Airlines (SIA) and Tata Sons, the parent company of Indian conglomerate Tata Group, have agreed to merge airlines Air India and Vistara, SIA said on Tuesday (Nov 29).

As part of the transaction, SIA will also invest 20.6 billion rupees (S$360 million) in Air India, giving SIA a 25.1 per cent stake in an enlarged Air India group.

Air India – which includes low-cost carriers Air India Express and AirAsia India – is wholly owned by Tata Sons. Meanwhile, Vistara is a joint venture between Tata Sons and SIA, with each company holding a 51 per cent and 49 per cent stake, respectively.

SIA expects the merger will boost its presence in India, strengthen its multi-hub strategy, and allow it to continue participating directly in a large and fast-growing aviation market. The merger would also result in SIA holding an immediate strategic stake in an entity that is four to five times larger in scale compared to Vistara, it noted.

The merger is expected to be completed by March 2024, subject to regulatory approvals.

SIA intends to fully fund the investment with its internal cash resources, which stood at S$17.5 billion as of Sep 30.

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The two companies have also agreed to participate in additional capital injections to fund the growth of the enlarged Air India in the next two financial years.

Based on SIA’s stake post completion, its share of any additional capital injection could be up to 50.2 billion rupees, payable after the completion of the merger. SIA intends to fully fund any additional capital injections with its internal cash resources.

The actual amount will depend on factors including the progress of the enlarged Air India’s business plans and its access to other funding options.

Air India and Vistara have a total of 218 widebody and narrowbody aircraft, and serve 38 international and 52 domestic destinations. Post-merger, Air India will be the only Indian airline group to operate both full-service and low-cost passenger services.

Shares of SIA closed at S$5.47 on Tuesday, up 0.2 per cent or S$0.01, before the announcement.