Tata group-owned Air India has also signed agreements to have a 100 per cent stake in AirAsia India.
Air India on Wednesday said an operational review process is underway to integrate budget carrier AirAsia India with Air India Express and the merger is likely by the end of 2023.
Tata group-owned Air India has also signed agreements to have a 100 per cent stake in AirAsia India. The carrier is a joint venture between Tata Sons and Air Asia Investment Ltd. Tata Sons has an 83.67 per cent stake and the remaining 16.33 per cent shareholding is with AirAsia.
The merger, likely by the end of 2023, is aimed at having a single low-cost carrier for the Air India group. Post-merger, the entity will be branded as Air India Express, according to a statement.
AirAsia India was launched in 2014 while Air India Express started operations back in 2005.
The consolidation of the two low-cost carriers -- AirAsia India and Air India Express -- will be undertaken as part of the restructuring roadmap that is being envisioned for the Tata group's airline business, Air India said in a statement.
"The assessment and implementation of the full integration process of AirAsia India and Air India Express, through a possible scheme of merger or otherwise and subject to necessary corporate approvals, is expected to take approximately 12 months, with network and other synergies to be realised progressively during that period," it said.
Currently, four airlines are part of the Tata group. They are Air India, Air India Express, AirAsia India and Vistara. The latter is a joint venture with Singapore Airlines. Tata group acquired Air India and Air India Express in January this year.
Earlier in the day, Malaysia's AirAsia Aviation Group Ltd said it has entered into a share purchase agreement to sell the remaining equity shares held in AirAsia India to Air India.
The consolidation of AirAsia India and Air India Express is expected to bring customer, revenue, cost and operational benefits through broader adoption of each airline's best practices, systems and routes, and the combined entity's greater scale, Air India said in the statement.
Air India has signed agreements to complete the acquisition of 100 per cent shareholding in AirAsia India.
A working group has been formed to evaluate and execute the integration of the Air India group's low-cost operations, which will be co-led by AirAsia India MD and CEO Sunil Bhaskaran and Air India Express CEO Aloke Singh.
The working group will report to a committee chaired by Air India MD and CEO Campbell Wilson.
About the merger of the two budget carriers, Wilson said, "We are excited to initiate the creation of a single Air India Group low-cost carrier".
"This is a key step in the rationalisation and transformation of the group, and we will be working closely with the management teams and staff throughout the process. We also look forward to the many new opportunities, a stronger AI group low-cost carrier will bring for customers and staff alike," he said.
In June, the Competition Commission of India approved the proposed acquisition of the entire shareholding of AirAsia India by Air India.
While announcing that it has signed an agreement to sell the remaining stake in AirAsia India, Group CEO of AirAsia Aviation Group Bo Lingam said that since 2014, "When we first commenced operation in India, AirAsia has built a great business in India, which is one of the world's biggest civil aviation markets".
"We have had a great experience working with India's leading Tata Group. This is not the end of our relationship but the beginning of a new one as we explore new and exciting opportunities to collaborate and enhance our synergies moving forward," he said in a separate statement.
Further, he said, the pandemic has allowed it to re-examine the priorities and "we felt that it was best suited for AirAsia to develop an Asean-only business".
The Malaysian group will continue to have airlines in Malaysia, Thailand, Indonesia and the Philippines.
"India will remain an important market for AirAsia and will continue to be served by our various airlines. We will use the experience and knowledge we have gained from operating in the Indian domestic market to grow the Asean-Indian market in logistics and passenger services to a far greater extent," Bo Lingam said.
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