SIA may raise stake in Air India to 40%

While the proposal is still at an early stage, Air India may welcome such a move as it will need SIA’s expertise to take on market leader IndiGo (Mint)
While the proposal is still at an early stage, Air India may welcome such a move as it will need SIA’s expertise to take on market leader IndiGo (Mint)

Summary

SIA and the Tata group have had initial talks regarding the potential increase in stake in response to a request from the Singapore-based airline

Singapore Airlines, or SIA, has expressed its desire to gradually raise its stake in Air India from the current 25.1% to about 40%, three people familiar with the development said.

SIA and the Tata group have had initial talks regarding the potential increase in stake in response to a request from a Singapore-based airline, the people said, requesting anonymity. While the proposal is still at an early stage, Air India may welcome such a move as it will need SIA’s expertise to take on market leader IndiGo (InterGlobe Aviation Ltd) in the domestic market and compete with Emirates and Qatar Airways, among other global carriers that cater to Indian fliers travelling overseas.

Graphic: Mint
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Graphic: Mint

A higher equity stake will likely make SIA more committed to improving the service standards of Air India through better training and processes. The airline will also play a major role in managing ground services, which include aircraft maintenance. The Tata group, however, will retain majority control and be involved in deciding on the routes and other policy issues.

If the ongoing talks are successful, it will mark an ironic turn of events as SIA’ crew received training from Air India in the early 1970s, when J.R.D Tata led the airline. SIA, which started its operations in 1972, is known to run a high-quality airline service, ranked as one of the best in the world.

“SIA’s interest is primarily driven by two factors—one is the growth potential of the Indian market (that has witnessed passengers return in record numbers), and the second is that the airline has made record profits and has enough cash to invest," one of the three people cited above said.

According to the plans announced in 2022, Vistara is to be merged with Air India, and SIA will get a 25.1% stake in the merged entity (upon investment of $267 million). Vistara, which is a 51:49 joint venture between the Tata group and SIA, will cease to exist after March 2024. “SIA always wanted to partner with Air India. So, them planning to increase the stake with better financials is just the next step," said a second executive, who also did not want to be named.

Things started to look up financially for SIA last fiscal year on the back of a record number of passengers taking flights. It posted a record net profit of $1.6 billion for the year ended 31 March 2023 versus a $713 million loss a year ago. It was a dramatic turnaround in the airline’s fortunes, as SIA had been posting losses for the last three fiscal years before FY23.

Emails sent to spokespeople for SIA and the Tata group did not elicit any response.

SIA, in a statement released after the earnings announcement, said it would be looking at “deeper collaborations with like-minded airlines".

“To prepare for the future, several strategic initiatives were undertaken, including the continued expansion of its network through deeper collaboration with like-minded airlines, the proposed merger of Air India and Vistara to bolster SIA’s presence in the fast-growing Indian aviation market, as well as Scoot’s decision to lease nine Embraer E190-E2 aircraft and expand its footprint to secondary points in the region," the airline said.

Analysts said it is a positive move for Air India and the aviation sector in India, which is struggling with the voluntary insolvency of GoAir that has raised questions on the market’s sustainability.

“Singapore continues to pursue its multi-hub strategy, and India is a critical part of that strategy. Increasing the stake to up to 40% is very positive and logical for both Air India and SIA. As Air India increases the size and scale of its operation, especially long-haul, having a world-class airline partner like SIA contributing more in a strategic manner will be key for Air India. If it materializes, it is a big positive for the aviation sector in India and Air India," Kapil Kaul, director and chief executive of CAPA India.

A third executive added that Air India plans to set up a best-in-class training academy for crew members.

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