The long stop date for the agreement will be extended from the current October 31 deadline to accommodate the expected transaction completion date.
Once completed by end-FY2024, SIA will recognise a non-cash accounting gain of $1.1 billion from the proposed merger.
The group will swap its 49% stake in Vistara and inject a further INR20.6 billion ($319.8 million) in return for a 25.1% direct stake in the enlarged entity.
SIA and Tata have also agreed to participate in an additional capital injection exercise on a pro-rata basis into the enlarged Air India after the completion of the merger, to fund the growth and operations of the enlarged Air India.
See also: UOBKH raises TP on SIA to $6.22, FY2026 earnings to see lift on fuel cost savings
SIA’s pro-rata share of 25.1% of the additional capital injection will be up to INR50.2 billion, based on its current agreement with Tata.
“Notwithstanding the strong local partner and immense potential, we maintain a neutral view on the deal, at least in the short term, given India’s highly competitive aviation landscape and the lack of profitability in the past,” concludes Ong.
He adds that SIA is experiencing intense competition from other regional carriers, resulting in declining load factors and passenger yield, particularly in East Asia, due to the group’s substantial capacity expansion in North Asia.
Downside risks noted by the analyst include more intense competition, weak cargo volume, as well as a sharp rise in jet fuel prices and non-fuel expenditure.
Conversely, re-rating catalysts include higher-than-expected yields, a steep drop in jet fuel prices or less intense competition than anticipated.
As at 10.52 am, shares in SIA are trading 4 cents higher or 0.64% at $6.32.
