Turbulence at AI Express: Tatas must address brewing troubles on priority, say experts

The Tatas have encountered rough weather again ahead of their mega airline merger. While the company looks to complete the merger of Air India and Vistara by FY25, experts who know of the operational challenges involved recommend that it slow down and address issues holistically to avoid discomfort to passengers. 

The Tata group is in the process of consolidating four airlines: Air Asia India into Air India Express to form a big budget carrier, and Vistara into Air India to form a big full-service carrier. The whole exercise has led to troubles with several Vistara flights cancelled in early April as staff did not report to duty, owing to disagreements related to remuneration and seniority as part of the merger.

Now, trouble is brewing at AI Express, as over 85 flights, domestic and international, were cancelled and thousands of passengers were stuck at airports on May 8. The company said on Thursday that it is making all efforts to minimise the inconvenience caused to passengers. 

Air India Express cabin crew withdrew their strike on May 9 evening after the airline agreed to look into issues raised by them, PTI reported citing sources. The airline has agreed to withdraw termination letters issued to 25 cabin crew, the report stated. The decision came after a conciliation meeting between the cabin crew representatives and the airline representatives at the Office of the Chief Labour Commissioner (Central) in New Delhi earlier in the day.

According to experts, a merger like this is often challenging as it does not just involve financial but cultural issues, since all four airlines have different ethos.

Capt. GR Gopinath, Founder, Air Deccan, is hopeful that the Tata group will be able to resolve the issues, considering its management experience in handling such situations in the past.

“When you do a merger, apart from culture, there is a huge problem down the line related to operational issues. Such fault lines also surfaced when they merged Air India and Indian Airlines. Now, the challenge for them is how to amalgamate the four airlines into one brand, get one entity, one board, one CEO, and integrate all different departments with a common vision and heartbeat,” Gopinath told Business Today.

On a positive note, he says these are problems the Tatas may not have anticipated but are capable of handling, and the country and customers need Air India to succeed after the exit of Jet Airways and Go Air and problems with Spice Jet; otherwise, we will end up with a monopoly of Indigo, which is not desirable, he said.

“The Tatas have depth of management, all the experience to overcome it, and the cash chest to survive when such things happen. They went through similar things in Tata Tea and other group companies, as they had massive union problems, but they found a way and solved them. In the 1980s, there was a huge labour movement, unions rebelled against textile mills, and there were serious issues at Tata Motors in Maharashtra, but they managed to overcome them,” he said.

There are, of course, questions being raised about a quick AI-Vistara merger. In January, Vistara CEO Vinod Kannan said the merger is expected to be completed by mid-2025, and all legal approvals for the transaction are anticipated by the middle of this year.

Vistara is a joint venture between Singapore Airlines and the Tata group. As per the merger deal between Vistara and AI announced in November 2022, Singapore Airlines will acquire a 25.1% stake in Air India.

Poonam Verma Sengupta, Partner at law firm JSA, says integration is going to be a challenge for AI and Vistara, especially resolving the concerns of employees, and it is also going to be a herculean task to accommodate all employees from Vistara in AI post-merger.

“With these challenges in sight, AI and Vistara have taken the right step to defer the completion of the merger by 2025 and take each step slowly and carefully. While handling these issues, AI, Vistara, and SIA must also remain vigilant about their commitments to the Competition Commission of India (CCI) and the Competition and Consumer Commission of Singapore (CCCS). Any violation on those fronts will expose them to legal proceedings for anti-competitive practices,” Sengupta, an aviation specialist, told Business Today.

After two and a half days of stalemate, the airline and the crew came to a middle ground putting an end to the suffering of hundreds of flyers. Hundreds of flights were cancelled since the night of May 7 as a section of the cabin crew reported sick in a protest against alleged mismanagement.

Ameya Joshi, founder of aviation research platform Network Thoughts, said the integration was to be concluded by now but is stuck due to both regulatory and operational issues, which further puts a question mark on a quick merger.

“For an organisation still reeling under issues of past mergers under the government, this is a challenge that needs to be effectively balanced to be able to compete with IndiGo in the future," he said.

So what lies ahead? While AI Express, a unionised organisation, is holding talks with staff and Air India has been mobilised on AI Express routes, there is a huge concern and resentment among staff that needs to be handled cautiously.

“There is a long list of compliances that AI and Vistara need to complete before the merger can finally be executed and completed, including relevant compliances under the Companies Act, 2013, SEBI regulations, RBI regulations, MCA approval, etc. Additionally, there are several compliances under DGCA, such as preparing common operational manuals, transferring flying crew between the two carriers, obtaining required approvals for the pilots, training the crew, etc. These are requisites for the merged entity to comply with in order to commence flight operations post-merger,” adds Sengupta.