On two wings

Will it be second-time lucky for Tata Sons and Singapore Airlines (SIA)? Many see a tie-up between them as a match made in heaven.

It started that way too. They first wooed each other during the Atal Bihari Vajpayee government’s rule in 2000. Tata Sons was anyway a name long associated with aviation. JRD Tata’s Tata Airlines was the country’s first national carrier, which was renamed Air India Ltd in 1946. Two years later, JRD founded Air India International Ltd as a joint venture with the Government for long-range international operations and was its Executive Chairman until it was nationalised in 1953. He continued as its Chairman until February 1978. Singapore Airlines, of course, has blazed global standards in passenger comfort, service reliability and worldwide connectivity.

In 2000, Tata Sons and Singapore Airlines tied up to bid for Air India, which was up for disinvestment. An SIA delegation was parked for months at Delhi’s Maurya hotel, doing due diligence for the merger and examining Air India’s books. It was a different time and place, a world far removed from the post-9/11 paranoia of security checks. A member of the SIA delegation recalled being within “spitting distance” of the then US President, Bill Clinton, who was staying at the same hotel during his India visit.

When Ratan Tata, nephew of JRD Tata and Chairman of Tata Sons, said at a press conference in Delhi that he wanted to recreate the magic of Air India and restore it to its pristine glory, many saw it as a fitting finale to a journey that JRD had started with the airline’s iconic maharaja.

But that was not to be. The disinvestment did not happen and the Tatas moved away not only from their partner Singapore Airlines but from aviation itself.

It was almost two decades before the two began making overtures to each other again in 2012. The Government had since changed the rules and allowed foreign airlines to take a stake in domestic airlines. This meant that a domestic airline or entity could tie up with a foreign airline as partner to launch an airline here. Taking advantage of the relaxation, Jet Airways sold a 24 per cent stake to Abu Dhabi-based Etihad Airways for ₹2,000 crore. A few months later, Tata Sons and Singapore Airlines were once again proposing to each other and to the Government for a new airline.

Past troubles over Air India were forgotten and the two companies focused on starting a new full-service domestic airline called Vistara (derived from the Sanskrit vistaar , or limitless expanse).

Announced in September 2013, the initial investment in the joint venture is estimated to be $100 million, with Tata Sons pumping in $51 million for a 51 per cent stake and Singapore Airlines investing $49 million for the rest.

Once again, industry watchers are optimistically referring to Vistara as the “marriage of the decade”. Amber Dubey, KPMG’s Partner and India Head, Aerospace and Defence, points out that this brings together a world-class airline and one of the best corporate houses in the country. “SIA brings in a global network, deep knowledge and airline best practices. Tata’s various businesses — IT, automotive, hotels, retail and general aviation, among others — will bring in synergy benefits,” he says.

The airline will initially operate only in the domestic space, as start-up airlines cannot fly abroad before five years of domestic operations and without a fleet of 20 aircraft.

The sentiment is so strongly in favour of the alliance that someone like Kapil Kaul, Chief Executive Officer, Centre for Asia-Pacific Aviation has called for rescinding the so-called 5/20 rule. “I hope 5/20 is scrapped at the earliest to allow India to have a world-class long-haul carrier in Vistara,” he says.

However, such positive thinking notwithstanding, it is unlikely to be a smooth flight for Vistara. Like the other players in the market, it will have to grapple with the high cost of aviation turbine fuel and airport charges. Dubey adds that some airports like Mumbai, Chennai and Goa have a shortage of slots and parking bays, especially at peak hours. “Staff will have to be poached from competing airlines at a higher cost and then groomed into a new Vistara culture. The first few months may bring in a lot of traffic due to the novelty factor, but to sustain a full-service model in the Indian market will be an interesting challenge, though not insurmountable,” he says.

Kaul believes Vistara will be seriously challenged by the existing carriers as full-service airlines like Jet Airways and Air India have come back into focus. Air India is hoping its decision to join Star Alliance, the global club of 27 airlines, will change its fortunes while Jet Airways is leaning on its international partner Etihad Airways.

With at least two Airbus A-320 aircraft ready and waiting in its livery, Vistara is preparing to take off. But when? That remains a closely guarded secret. There have been delays. Set for an October launch, the airline has so far received only a No Objection certificate from the Ministry of Civil Aviation. It is readying its flying manual and aircraft for route proving flights ahead of getting the nod from the airline regulator, the Directorate General of Civil Aviation, for commercial operations. Also hanging fire is BJP leader Subramanian Swamy’s Public Interest Litigation against the grant of clearance to Tata-SIA’s new airline.

However, with a lot more than money and the credibility of the two partners at stake, this alliance will be anxiously hoping for a happily-ever-after kind of beginning.

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