Competition notice in aviation

CCI scrutiny of Air India-Vistara merger could be a test case

Duopoly in India is a concern not just to telecom. Aviation too is showing signs of two players dominating the market. Against that backdrop, the competition watchdog has raised a kind of red flag while studying the proposed merger of Air India, acquired by Tata Group in 2022, and Vistara, a joint venture of the group and Singapore Airlines. The notice, sent by the Competition Commission of India (CCI) to Air India asking why its merger with Vistara should not be investigated from the realm of antitrust norms, could result in delaying the deal. Apart from that, the course of the CCI investigation, after a reply from Tata Group within a month, is sure to set a precedent for defining what constitutes anti-competitive behaviour in aviation. The fact that a very small number of mergers and acquisitions (M&As) — estimated at less than 5 per cent — end up getting a notice of this nature makes it a test case for the aviation sector.

Although M&As need to be scrutinised, Air India and its owner, Tata Group, passed the CCI examination twice in the past two years. In December 2021, the CCI cleared the Rs 18,000 crore deal of the Tatas to acquire Air India. After emerging a winning bidder in October 2021, Talace, a wholly owned subsidiary of Tata Sons, bought 100 per cent in Air India and Air India Express, and 50 per cent in Air India SATS Airport Services (AISATS). At the time, the Tatas were operating Vistara through a 51-49 per cent joint venture with Singapore Airlines. Air Asia India was also in the Tata stable through a JV with Malaysia’s Air Asia. An official statement in the last week of December 2021 said the CCI had approved Talace acquiring shareholding in Air India, Air India Express, and AISATS. In June last year, the CCI approved Air India’s proposal to buy the entire equity share capital of Air Asia India.

The latest notice has come in response to the Tatas’ proposal in April for a merger of Air India and Vistara. After the merger, Singapore Airlines’ stake in Vistara would come down to 25.1 per cent from 49 per cent now. The regulator is seeking a review perhaps keeping in mind that dilution of stake by SIA in Vistara would make the Tatas a stronger player. There is a view that the watchdog should have taken into cognizance the market share of the conglomerate when it was acquiring Air India.
 

The pan-Indian market share of the merged Air India entity is estimated at a little over 25 per cent, which is way below market leader IndiGo’s 55.7 per cent as of January-March. However, on the five busiest routes, Air India-Vistara-Air Asia India-Air India Express, as a merged entity, holds a substantial market share — anything from 38 to 53 per cent. That reality may not have changed much since the CCI cleared Tata Group’s M&A proposal in two instances starting 2021.

A series of grounding and bankruptcies of airlines in the recent past may have triggered the CCI notice to Air India. The large aircraft orders placed by IndiGo and Air India may have also rung an alarm bell. Even so, the CCI, which recently got a chairperson after months of languishing without a head and a quorum, should be more robust and consistent in its scrutiny and investigation to inspire greater confidence.