Singapore Airlines announced Tuesday it will take a 25 percent stake in Air India, streamlining its aviation partnership with Tata Group as the industrial behemoth works to revive the beleaguered national carrier's fortunes.
Air India was in January returned to the ownership of its founders at Tata, a sprawling family-owned conglomerate with interests ranging from tea to steel, after decades as a monumental drain on the public purse.
Tata and Singapore Airlines already jointly own Vistara, a full-service carrier that has nearly 10 percent of India's domestic market, with a respective 51-49 percent share.
Both companies said they had agreed on a deal to fold Vistara into Air India by March 2024, with Singapore Airlines taking a 25.1 percent stake in the merged carrier in exchange for an equity injection of 20.6 billion rupees ($250 million).
"The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline," N. Chandrasekaran, chairman of holding company Tata Sons, said in a statement.
"We are excited with the opportunity of creating a strong Air India which would offer both full-service and low-cost services across domestic and international routes," he added.
The merged Air India will have a fleet of 218 aircraft, making it the country's second-largest domestic airline after IndiGo.
Air India is already India's largest international carrier, but its domestic market share stood at only 8.6 percent in September, the most recent month for which data is available.
Tata bought back the flag carrier for $2.4 billion in January after 69 years under state ownership, with the government writing off three-quarters of its 615 billion rupee debt.
Since then, Tata has imposed sweeping changes including the appointment of Campbell Wilson -- the former head of Singapore Airlines' low-cost subsidiary Scoot -- as Air India's first foreign chief executive.
Air India aims to take 30 percent of India's domestic market share in the next five years, while rapidly expanding its fleet to cover more international routes.
"With this merger, we have an opportunity to deepen our relationship with Tata and participate directly in an exciting new growth phase in India's aviation market," Singapore Airlines chief executive Goh Choon Phong said in a statement.
India is the world's third-largest aviation market and is projected by Airbus to grow at 6.2 percent annually over the next two decades.