Singapore Airlines is to take a 25% stake in an enlarged Air India group after agreeing a deal with partner Tata Sons under which it will merge joint-venture operation Vistara with the Indian carrier.

SIA and Tata launched Vistara in 2013, holding 49% and 51% of the carrier, respectively, and in July it became India’s second biggest airline in the domestic market.

Vistara Boeing 787-9 Dreamliner 2

Source: Vistara

Launched in 2013, Vistara held a 10% share of the domestic market in July and August, behind only IndiGo Airlines

A potential merger between Vistara and Air India has been mooted ever since Tata took control of the Indian national carrier in January following its privatisation. The parties last month confirmed talks were taking place over a merger.

As part of the deal, SIA is investing Rs20.59 billion ($250 million) in Air India, which will give it a 25.1% stake in the airline. The parties aim to complete the merger by March 2024 subject to regulatory approvals.

SIA and Tata will also make further capital injections “if required” to fund the growth and operations of an enlarged Air India, both in this and the next financial year. SIA says its share of this investment, based on a 25% shareholding, could be up to Rs50.2 billion – payable on completion of the merger.

”The actual amount will depend on factors including the progress of the enlarged Air India’s business plan, and its access to other funding options,” SIA says. It will fund these investments through internal cash resources.

SIA says the deal  supports its multi-hub strategy, giving it a strategic stake in an entity that is four to five times larger than Vistara operating in a “large and fast-growing aviation market”.

SIA chief executive Goh Choon Phong says: ”With this merger, we have an opportunity to deepen our relationship with Tata and participate directly in an exciting new growth phase in India’s aviation market. We will work together to support Air India’s transformation programme, unlock its significant potential, and restore it to its position as a leading airline on the global stage.”

Tata had already consolidated the group’s low-cost assets after acquring the remaining stake in AirAsia India from the Malaysian group with the aim of merging it with Air India Express by the end of next year.

Tata Sons chairman Natarajan Chandrasekaran says: ”We are excited with the opportunity of creating a strong Air India which would offer both full-service and low-cost services across domestic and international routes.

”The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline. As part of the transformation, Air India is focusing on growing both its network and fleet, revamping its customer proposition, enhancing safety, reliability, and on-time performance.”

The enlarged Air India group – including Air India Express and AirAsia India – with Vistara has a fleet of 218 widebody and narrowbody aircraft, serving 38 international and 52 domestic destinations.