Air India is one of the most interesting airlines around. Following its privatisation in January 2022, it has struggled to modernise and implement an ambitious growth plan against the backdrop of the AI171 disaster, exclusion from Pakistani airspace and global fuel price shock, leading to them posting a loss of US$ 2.33 billion in its latest financial year and reports that they’re seeking a fresh US$ 1.5 billion capital injection from its shareholders.
Air India are 25.1% owned by Singapore Airlines (SIA) with the remainder owned by Indian conglomerate Tata Sons. Thus, in order to maintain their relative shareholding SIA will will need to contribute $478 million (US$ 376.5 million) to the capital raising. This has generated significant debate in Singapore with opposition lawmakers questioning whether state-owned SIA should be making investments in foreign carriers (SIA is majority owned by Singapore’s sovereign wealth fund Temasek Holdings).
Unless otherwise indicated we use Singapore Dollars throughout this article and SIA’s financial years ending March.
While the government has reiterated SIA and Temasek’s independence, it has put SIA’s investments in India and it’s track record of foreign investments under more scrutiny. Let’s explore …
Not their first rodeo
Air India isn’t SIA’s first investment in an Indian airline and not their first investment in a foreign carrier either. Given their excellent reputation as an airline operator, it might come as a surprise that SIA don’t have the best track record investing in foreign airlines.
Last week Reuters published a short note highlighting this track record. The list makes for hard reading, showing a record of failure, loosing significant sums of money in investments in Virgin Atlantic, Air New Zealand, Tiger Airways Australia, Virgin Australia and NokScoot.
While nobody makes an investment intending to burn money, the success or failure of the investment shouldn’t only be viewed by how much of a profit or loss was made. Investments in other carriers are often more strategic than just making a profit on the investment. The strategy often focuses on network synergies and partnerships, or helping gain market access. For example, when SIA bought 49% of Virgin Atlantic for £600 million in 1999 it intended to leverage the position for traffic rights to fly transatlantic routes from London. This never materialised and they subsequently sold its share in Virgin for £224 million in 2012, respresenting a significant loss on the investment.
So how did SIA get involved in Air India, and how does its investment stack up to its previous (mis)adventures? Let’s start with Vistara …