Budget airline AirAsia India (I5, Bangalore Int'l) would be united with Air India (AI, Mumbai Int'l) as a single entity if its owner Tata Sons is chosen to privatise the heavily indebted flag carrier, “top executives aware of the plan” have told the Economic Times newspaper. Tata Sons’ other majority-owned airline, the full-service carrier Vistara (UK, Delhi Int'l), will also be part of the combined entity if 49% shareholder Singapore Airlines agrees.

Grouping all of its airlines under a single umbrella would encourage synergies and eliminate duplication, the unnamed sources said, adding that this would help it “scale up the game and be the number one player in the space.”

The Indian conglomerate owns 83.67% of AirAsia India, having raised its stake from 51% by acquiring a chunk of equity from AirAsia Group at the end of last year. It still has a call option on the remaining 16.33%, and the Malaysian group has signalled that it will exit the Indian business by March 2022.

Tata has, according to the sources, told Singapore Airlines about its plans if it succeeds with Air India, but the Singaporean carrier has declined to comment on “any confidential discussions we may or may not be having with our partners.” Tata Sons, AirAsia India, and Vistara have also declined to comment.

India’s government confirmed on September 15 that it had received the final bids for its privatisation process to sell 100% of Air India, also including 100% of low-cost subsidiary Air India Express (IX, Mumbai Int'l) and 50% of groundhandler Air India SATS. Besides Tata Sons, rival SpiceJet (SG, Delhi Int'l) also put in a bid, local media reported.

Earlier reports have suggested that, if Tata is successful, a mega umbrella carrier could be created in which AirAsia India and Air India Express would merge, as would Vistara and Air India. To achieve this, the conglomerate has been looking at the possibility of hiring integration specialists to assist it given the complexities involved, the sources told the Economic Times.

In a separate report, two anonymous sources told the business news site Moneycontrol that Tata Sons is willing to acquire no more than 15% of Air India’s total debt and has been in discussions with the government on the issue. The conglomerate would take on this level of debt “if the government is willing to meet certain requirements,” they added without elaborating.

According to amended rules in the privatisation process, bidders can say how much debt they are willing to absorb. Air India’s accumulated losses reportedly stood at INR708.2 billion rupees (USD9.5 billion) at the end of the financial year ending March 2020.

Other sources told the Times of India, meanwhile, that the government was likely to set a reserve price at between INR150 billion and INR200 billion (USD2-2.7 billion) - but that if bids are less than this minimum it is still likely to sell off the airline. The priority is not to make money on the divestment but to halt state funding of the loss-making airline, the sources said.