India’s fair-trade regulator has issued a show-cause notice to Air India, asking the Tata-owned airline why an investigation into its proposal to merge with Vistara should not be conducted, according to two persons familiar with the matter.
Salt-to-software conglomerate Tata Group has 30 days to respond to the notice by the Competition Commission of India (CCI) and secure approval for the merger of its airlines without an investigation.
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If the CCI is unmoved by the response and decides to pursue an investigation, the Tatas have two choices — one, divest their stake in Vistara, and two, commit to “behavioural guidelines” that will not adversely impact competition in the aviation sector, said one of the persons cited above.
The Tatas sought the approval of CCI to merge Air India and Vistara, the group’s joint venture with Singapore Airlines (SIA), in April.
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The CCI notice comes amid growing unrest among passengers over rising airfares, prompting the government to ask airlines to ensure reasonable fares. Air India and larger competitor IndiGo have ordered a record number of planes, triggering concerns that the Indian aviation market is headed for a duopoly.
CCI and Air India had no comment.
CCI approval is required for mergers and acquisitions of businesses that surpass thresholds on assets and turnover fixed under the Competition Act.
The CCI has in recent years emerged as one of the most powerful regulators in India. Besides the mandate to approve mergers, the CCI now has powers to raid businesses if it believes an entity has hurt consumers.
The regulator reviews merger proposals through two phases of investigation. Under the so-called Phase-1 investigation, it is required to form a prima facie opinion on whether a merger is likely to cause or has caused an adverse effect on competition in a relevant market in India. The Phase-2 investigation is launched when CCI sees a potential fallout on competition due to a merger.
Air India is represented by AZB & Partners, Mumbai and SIA by Shardul Amarchand Mangaldas & Co.
Tata will own 51% of the total issued and paid-up equity share capital of the merged entity and SIA will hold 25.1%, according to a filing before the CCI. The merger will not lead to a change in the competitive landscape or cause any adverse effect on competition in India, Tata said in the filing.
Tata announced the Air India-Vistara merger in November in a bid to take on IndiGo, which dominates the Indian skies with a market share of more than 60%. Air India and Vistara together have a market share of 18.4%, according to the May traffic data collated by aviation regulator DGCA.
In November 2013, the CCI approved a proposal by Gulf carrier Etihad to purchase 24% in grounded Jet Airways. The CCI then cited the insignificant increase in market share forecast on India-UAE routes as one of the reasons for the approval.
The government returned Air India, founded by JRD Tata in 1932 and nationalised in 1953, to the Tata fold in January 2022.
