With Tata Sons likely to take control of and start operating Air India (AI, Mumbai Int'l) by January, the Indian conglomerate has begun work on merging the flag carrier's budget unit Air India Express (IX, Mumbai Int'l) with the no-frills carrier it now intends to own fully, AirAsia India (I5, Bangalore Int'l), “top executives” close to the matter, told The Economic Times on November 18.

The group currently holds an 83.67% stake in AirAsia India. Also, on November 18, a source in the banking sector confirmed to another newspaper, Business Standard, that Tata Sons would buy the remaining stake for USD19 million in a transaction to be completed by early next year. Once that is done, the planned merger with Air India Express can then go ahead.

The conglomerate also holds a 51% shareholding in Vistara, its full-service venture with Singapore Airlines. The above low-cost merger will be the first step towards creating a single aviation entity under which all of the carriers would be placed.

“This is the most logical move at this stage,” one of the executives told The Economic Times. “With so many experts on deck, this integration will help the group swiftly set up the single airline structure it has been planning for a while.”

Tata Sons has organised several meetings in recent weeks with the senior management teams of AirAsia India and Air India, also involving external corporate integration specialists, to discuss matters such as melding departments, staff, and maintenance procedures.

“There is a sense of urgency to quickly get operations seamlessly off the ground and ensure no disruptions at customer-facing points,” said another source, adding that Tata is keen to drive cost efficiencies and prevent the duplication of operations by redeploying staff if possible.

The executives confirmed that Tata is simultaneously in talks with Singapore Airlines on integrating the schedules of the two full-service airlines Vistara and Air India.

AirAsia India declined to comment, while Tata Sons and Air India Express were not available for comment.

According to the ch-aviation fleets advanced and ch-aviation capacities modules, Air India Express operates a fleet of twenty-four B737-800s, mainly on short- and medium-haul international operations, especially to the Middle East. AirAsia India uses twenty-eight A320-200s and five A320-200N aircraft (with eight A321-200NX aircraft to be delivered) exclusively on domestic ro. However, it is reportedly closing in on obtaining international flying rights.

The article in Business Standard followed a report in Nikkei Asia earlier in the day that two unnamed sources had told it that AirAsia Group was finalising negotiations to sell its remaining 16.33% stake in AirAsia India to Tata. The two groups have been in talks on the issue at least since last summer, with the Indian side increasing its stake by the end of 2020. The sources said that the Malaysian group was looking to sell its final chunk of ownership after the Indian government announced Tata’s successful bid to take over Air India last month.

“India was a tough market to break as far as the airline business is concerned, and with the pandemic, it made it tougher for AirAsia,” said one of these sources, who also confirmed Tata Sons’ desire to consolidate some of its airline businesses. “It would not make sense for Tata to run both AirAsia India and Air India Express, which have very similar business models.”