Singapore Airlines and Air India – Throwing Good Money after Bad? |

Singapore Airlines is backed by Temasek Holdings, the Singapore sovereign investment fund that is the airline's majority shareholder. Temasek is now looking closely at its investment in Air India, as the company is requesting new equity from its owners, primarily the Tata Group. Air India needs a massive turnaround and has been losing money for decades, even with the new management from the Tata Group and its relationship with Singapore Airlines for Southeast Asian travel. The long-term strategy for the third-largest aviation market seems to make sense. Unfortunately, the short-term reality that a turnaround for Air India may not be possible hasn’t yet set in. [caption id="attachment_197120" align="aligncenter" width="640"] Image: Simpleflying[/caption] The Concept and Long-Term Strategy Recognizing the future potential of the Indian market, Singapore Airlines invested in Air India after the Tata Group acquired it in 2022 and is the only foreign airline with an equity stake in an Indian carrier. The strategy has been to develop a secondary hub in the world’s third-largest aviation market, but has come at a high price. [caption id="attachment_197121" align="aligncenter" width="519"] Image: Air India[/caption] Air India has endured massive losses, the first crash of a Boeing 787, and a significant hit to its premier market, Delhi-to-London, as a result of that crash. Combine that with a dispute that closed Pakistan’s airspace, the Israeli-US war with Iran, and high fuel prices, and the airline has faced a perfect storm. Even within India, Air India needs to upgrade its reputation. In the last year, Air India lost more than $2 billion, with a proportional 25.1 percent of that allocated to Singapore Airlines. Air India, under Tata management, is seeking another $1.5 billion in investment capital, with 25.1% likely to come from Singapore Airlines. But Singapore’s primary shareholder, Temasek, is a government-controlled entity and is subject to political pressure, which the opposition party is providing in Parliament. Political Opposition May Prohibit Further Investment The opposition Labor Party has objected to further investment by Singapore in Air India, as the government is currently experiencing substantial losses from its share of the Indian carrier. The outlook for Air India suggests it may take another decade to turn the airline into a profitable enterprise. Temasek has recognized the long-term nature of the investment and code-sharing joint venture, and understands that a full turnaround could take a decade. With new management coming into the airline, it will be a challenge to continue the positive momentum and change an ingrained bureaucratic culture that emerged from the airline being a favorite place for political patronage jobs that didn’t add value. With Air India’s balance sheet a shambles, with liabilities exceeding assets, Singapore Airlines' auditor has already cited “indicators of impairment” in its evaluation of the investment. In the interim, Temasek reaffirmed its support for the long-term strategy of a secondary hub in India and participation in a large market. It did not, however, commit to further funding, leaving the decision to the Singapore Airlines Board on whether to invest $US 376 million in the loss-making airline. Parliament, however, will meet September 8th and could take up the question as the government is the major shareholder of Singapore Airlines. A Poor Track Record Singapore Airlines has a poor track record of investing in other airlines. Its investment in Air New Zealand lost money, as did its investments in Virgin Australia and Virgin Atlantic. Today, the Air India investment appears to be no different. But SIA is between a rock and a hard place. If it doesn’t invest, the joint venture would likely fall apart, leaving the partnership unable to achieve its strategic goals. It would then need to sell its shares, but to whom? Only Tata Group is in a position to acquire them, and given the “indicators of impairment” at Air India, it is unlikely that a third party would attempt to acquire their equity stake, resulting in a write-off. If it does invest, it is making another bet on an airline outside its control, which could result in either future bankruptcy or success. But there are no guarantees. The Bottom Line Air India, despite the best efforts of Tata Group, remains a mess. The carrier is overstaffed, underproductive, and has been a home to political favors for many years. A five-year turnaround is proving unrealistic, and turning the carrier around from losses to profitability may take another decade. Air India needs a cash infusion, and Tata Group has already invested $2.3 billion in the loss-making airline. Raising an additional $1.5 billion will be difficult outside the current owners, given the airline's condition and its upside-down balance sheet. While the long-term potential may remain, short-term survival is critical for Air India, and management still hasn’t found the right levers to rebuild the airline into a profitable enterprise. As a significant shareholder in Air India, Singapore Airlines and the government investment fund that is its largest shareholder could approve further investment in Air India simply to avoid a massive loss, as there are no likely purchasers lining up for a stake in Air India, and Tata Group has its own additional equity to raise. There are no easy answers. The secondary hub strategy, on paper, makes sense over the long term - but only if Air India can survive until then. But we live in reality, and throwing good money after bad and re-investing into an essentially bankrupt entity doesn’t make sense. Our expectation is that Singapore’s major shareholder, Temasek, will face political pressure and need to defend against accusations that it is throwing good money after bad. That’s a shame, as Air India could learn a lot from Singapore Airlines in terms of safety, operations, staffing, customer service, and maintenance. SIA remains one of the top airlines in the world. But a partnership with Air India, over the longer-term, could be detrimental rather than positive unless Air India can be turned around. After several years and billions of dollars, that hasn’t happened yet, and investing another $1.5 billion with no assurance of success doesn’t look like a good bet, in our opinion. As they say in Delhi, Whitehall may have invented bureaucracy, but India perfected it. Air India is a prime example. All things being equal, it could be time to let a dying airline fail. But Tata & Sons is not an ordinary owner, and flag carriers, even those privatized, often obtain government life support.

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