AIR INDIA IS SITTING IN A SWEET SPOT THAT SINGAPOREANS HAVE NO IDEA AT ALL
The most frustrating psychological realities of the financial world is "hindsight bias". This is the "I knew-it-all-along" phenomenon. Everyone look like a genius after the charts have already climbed or dived. When looking backward, market movements look like a predictable sequence of logical events. In reality, the future is always a messy cloud of probabilities. There are four types of "post-fact expertise":
- The retrospective predictors: They knew the stock was going to crash, or soar. Did they hold a short or long position pre-fact?
- The opportunity capitalisers: They leverage market events to build a brand/sell subscriptions.
- The emotionally charged bystanders: They loudly vent or brag to cope with psychological pain/pleasure.
- The institutional evaluators: They methodically audit what went right or wrong to improve.
Over social media, I see lots of emotionally charged angry bystanders whose views or comments of the SIA's Vistara-Air India merger are of course anti-establishment. I do see some level-headed comments but they are rubbished by the angry crowd. The PAP fanboy Critical Spectator was busy dishing out several posts. Actually, he made several comments which I think are fairly well thought out, but he is writing against the tide. Critical Spectator's rhetorics are not persuasive compared to what I lay out here, which if I may be allowed to boast, provides more domain fundamentals that provide clarity. The airline industry is highly complex and if you have the perseverance to read to the end, you may realise SIA-Tata-Air India are far from sitting idiotically and fumbling, desperately searching for cash to plumb huge leaks the way media has framed the situation.
I restrict myself to dwell on only one point made by Critical Spectator. In his "Learn Something Before You Want To Talk About Air India" he listed 8 points. In his exuberance he said in #2 "In 2024 SIA made $1.1bn profit from that [Vistara-Air India] merger." There was no profit as in actual revenue and cashflow. It was simply an accounting magic show. That was simply Air India's valuation of Vistara over and above the carrying cost reflected in SIA's books. To those who understand financials, one thing is very clear. The following year when SIA recognises its 25.1% share of Air-India's performance, this S$1.1bn won't be there anymore. Expect to see a massive drop in SIA's P&L unless Air India makes S$4.4bn in profits.
Lee Kuan Yuan had a point ... but...Angry bystanders point to Lee Kuan Yew's advice back in 2001 when SIA was contemplating making a joint-venture bid with Tata for Air India. India's security laws do not permit a foreign major owner in an airline. Lee asked why take a 49% interest where we had no control. With all due respects to politicians who never run a business, control can be effected through various mechanisms to an acceptable risk level. Elon Musk has only about 45% of economic equity in SpaceX, but he has about 85% controlling interest through voting rights. Vistara was 49% SIA and 51% Air India. It was a Joint-Venture. We have no idea what's in the JV Agreement, but obviously SIA had clauses in there that protected its interest to an acceptable risk level.
An investor taking a substantial minority interest -- specifically a large block like 49% -- is a highly strategic move often seen in private equity, corporate ventures, and cross-border joint ventures. While they do not hold de jure operational control (which usually requires >50%), they deliberately choose this structure to balance maximized economic upside with strategic risk mitigation.
If an investor buys 51% or more, the original founders become employees. By leaving the founders with 51% (control), the investor ensures the entrepreneurs remain deeply incentivized, highly motivated, and "in the driver's seat" to grow the business.
The investor gets 49% of the financial upside (dividends, equity growth) while preserving their own capital. They avoid paying the heavy "control premium" (the extra money required to buy out voting control).
In many countries or protected industries (e.g., aviation, telecoms, defense, banking), foreign ownership is legally capped at 49%. A 49% stake allows an investor to maximize their economic footprint without triggering national security or regulatory blocks. This is the case with SIA in India.
An experienced investor never take a 49% stake without legally engineering control through alternative methods. On paper, they are a minority shareholder, but in reality, they protect themselves through the Shareholders' Agreement (SHA). The mechanisms take the form of:
- Supermajority & Veto Rights: Critical decisions require a 75% or 80% vote, rather than a simple majority. This gives the 49% investor absolute veto power.
- Board Representation: The investor secures disproportionate board seats (e.g., 3 out of 6 seats) or the right to appoint the CFO. They control the company's financial purse strings and strategy without needing majority voting shares.
- Drag-Along & Tag-Along Rights: Contractual clauses that dictate how shares can be sold in the future. Prevents the 51% majority owner from selling the company to an unfavorable third party without the 49% owner's consent or participation.
Did SIA hold a SHA when they went into the Vistara-Air India merger? If you bet your last dollar with me you have lost. The merger was under a highly detailed SHA. While the transaction documents are confidential corporate filings, the core operational boundaries of their SHA were made public via Singapore Exchange (SGX) regulatory announcements. SIA CEO Goh Choon Phong is a board member in Air India. Although SIA has only 1 seat in the 7-member board, critical decisions require Goh's approval. He has veto power. Of the C-suites, SIA seconders hold the COO and Head of Engineering and Maintenance positions.
In the running of Air India, there is a clear split of power and responsibilities down the middle between Tata and SIA.
- SIA Controls Operations: SIA has deliberately taken over the critical, safety-sensitive verticals -- Flight Operations, Engineering, and Maintenance. This was done to address deep-rooted operational hurdles and align Air India with SIA's global standards. SIA executed what aviation analysts call a "capability transplant," embedding a specific team of its own operational experts into Air India. Angry bystanders get it wrong if they harbour racist thoughts that Indian management will run Air India to the ground. SIA is in the driver's seat.
- Tata Controls Commercials: Tata Sons manages the business side, filling top spots in Commercial Strategy, Finance, Human Resources, and IT.
SIA holds certain "Statutory Powers". There is a reason why 25.1% and not 25%. Under the Indian Companies Act, a simple majority (51%) handles daily business, but structural corporate changes require a 75% "Special Resolution" majority. By locking in 25.1%, SIA legally guarantees that Tata Sons (holding 74.9%) cannot push through major changes without SIA's express consent.
In the current cashflow crisis, angry bystanders think Air India's request for $2bn is the company holding a gun to SIA's head for its share of $500mn. Because of the SHA, SIA’s board has the legal framework to "carefully consider" additional fund requests based on commercial milestones rather than being blindly forced to write a blank cheque. Angry bystanders get it wrong again.
The Asymmetric Strategic Benefits To SIA And Air IndiaAngry bystanders remind me of open table poker games I used to play in my younger days during the Chinese New Year holidays. There are some players who tend to fold by the second or third open card. Statistically this strategy tends to lose when the night is done. The angry Singaporeans expect Air India to be profitable in the first year after merger with Vistara.
You have probably heard about multi-hubs and have a vague idea about its advantages. You have also probably heard the line which you think is defensive and stale -- India has a huge market, middle class demographic is growing. While this is true, it is but only one consideration. If you have no idea about "codesharing" and airport slots, then you do not comprehend the huge strategic benefits Air India offer to SIA. It is still early days for the full monetisation effects of this strategic alliance to be visible.
Multi-hub advantage:
SIA used to be a single-hub based in Singapore. With Air India, SIA can now use New Delhi and Mumbai as a hub without having to base its planes there and invest heavily local ground crews and operating office. SIA can use Air India as the "collector" that fetches passengers from all across India into SIA planes for flights to Singapore and beyond where Air India does not go. Imagine what it means on scale -- picking up so many pax without the additional financial overhead burden.
Code-sharing advantage:
With "codesharing", it allows Air India and SIA to pick up each others passengers in the global market. For example, for a London-Perth flight, SIA can sell a ticket using SQ flight number, but the passenger may board an Air India for London-New Delhi, then transfer to SIA for New Delhi-Singapore-Perth. This allows SIA better time scheduling as well as continue selling tickets when its own flight is full. Codesharing allows both SIA and Air India to bypass tricky some bilateral country restrictions.
Direct Third-Country Access for SIA:
By owning a quarter of Air India, SIA achieved what no other foreign airline could -- direct access to India’s domestic market and its sovereign international traffic rights. SIA is geographically restricted from flying passengers directly from India to Europe because bilateral rules prohibit a non-Indian carrier from operating those direct routes (known as Fifth and Seventh Freedoms).However, through its stake in Air India, SIA financially participates in and operationally steers those exact highly lucrative direct India-to-West routes.
Airport Slots - SIA's Ultimate Pay-off From Air-IndiaAnd here is the part I am guessing angry bystanders do not comprehend. For if they do, they won't be angry in the first place. This is something called "airport slots". These are time allocations for airlines to land and take off. If you don't have a slot, you can't operate at that airport. The more slots you have, the more flights you can operate out of that airport. In the super heavy traffic airports like London Heathrow Airport, Chhatrapati Shivaji Maharaj International Airport, Mumbai (BOM) Tokyo Haneda Airport, John F. Kennedy International Airport, New York, Indira Gandhi International Airport, New Delhi etc. they have runway and parking capacity constraints. That means airport slots are finite.
A slot is always mentioned in pairs. A landing time (say 9am) + a take-off time (say 11am). The gap between them is the airline's turn-around time. In the airline business, airport slots are extremely valuable assets. To get a sense of it, Oman Airlines paid US$75mn to Kenyan Airways for a pair of slots in Heathrow Airport in 2016. This is a permanent slot and works out to about US$11,000 daily. Airlines can also lease slots for specified periods, They can also swap slots. The $ value of slots depends on airports and peak hours.
Airport slots are allocated twice a year. The process is non-monetary and based on Worldwide Airport Slot Guidelines. Slots are allocated on a "use-them-or-lose-them" basis. If an airline fails to maintain an 80% utilisation rate in a year, it automatically loses the slots. That is why some planes will take-off with few passengers. Some planes take off with no passengers -- the market calls them "ghost flights".
Some airlines hold slots with what is called "grandfather rights". These are slots held in perpetuity. They are not subject to the twice a year re-allotment but they are still held to the same 80% utilisation rule. These grandfather rights were given to airlines that operated long ago. Tata operated Air India commencing 1932. As one of the few premium world airlines back then, Air India holds a massive amount of airport slots. These are assets worth its weight in gold, but does not appear in the balance sheet. SIA has landed itself indirectly with a 25.1% share of this valuable asset not factored into the merger math.
Airport slots are to planes what spectrum bandwidths are to telephony companies. This is a priceless jewel that angry Singaporeans have no reason to be angry about.
The Sweet Spot In Airline Industry - The 8-hour radiusThe 8-hour radius is a cornerstone metric in global aviation because it marks the critical boundary of single-segment widebody flight economics. There are three reasons:-:
- Crew Logistics and Flight Limits: Under international aviation safety laws, a flight crew can generally operate a single shift up to 8 to 10 hours without requiring a second, relief crew on board. Once a flight stretches past 8 hours, airlines must pay for extra pilots and cabin crew to rest in onboard bunks, adding significant labor costs and taking up valuable seat space.
- Aircraft Utilization: A flight under 8 hours allows an aircraft to fly to a destination, ground-turn, and fly back within a single 24-hour cycle. This keeps the plane moving and maximizing revenue.
- Passenger Psychology (The "One Meal" Rule): For a traveller, an 8-hour flight represents the psychological limit of a "medium-haul" trip. Passengers generally expect one main meal, can easily tolerate basic economy seating, and can avoid the crushing jetlag of true ultra-long-haul travel (like Singapore to New York).
Emirates has been the world's number airline for the past several years. Emirates did not become the world's best airline simply because its cabin crew smile more beautifully or because first-class product is luxurious. It became great because it built one of the most successful airline business models in history -- using Dubai's geography, a global hub-and-spoke network, enormous scale and a premium product to capture a significant share of East-West traffic. It's service quality is important precisely because it helps the business model win passengers. And the financial results prove their model works.
Service excellence may be copied, as SIA has found out. But strategic architecture is entirely different.
Dubai sits right in the middle of an 8-hour sweep spot circle, a region that contains 60% of the world's population. While all older and well-established airlines continue to use the point=to-point system and and protect their turf using protectionist means, Emirates use geography to advantage with a hub-and-spoke architecture. They use wide-bodied A380 and Boeing 777 planes to have scale bringing East bound and West bound pax to transit Dubai and then move them out from there. The scale allows them to fix competitive prices. Around this they build excellent service and luxury planes to capture the business segment which is where the money is. On top of this, government policy alignment built great infra to ensure smooth transit experience for customers -- the shops, entertainment, baggage transfer systems, etc.
Emirates system has been so successful for years that Qatar (based in Doha) and Etihad (based in Abu Dhabi) have copied them. They are known as the Middle East Big Three (ME3) Together they handle 1/3 of the East-West traffic and half of Europe-Australia/NZ traffic. Ethihad ran the model with an aggressive investment strategy that failed, forcing them into a major restructuring.
An airline can have best smiling crew, beautiful lounges, most comfortable seats, excellent food -- and not make money. Emirates describes itself as the most profitable airline in the world. For Y/E Mar 2026 Emirates reported revenue US$35.7bn, profits of US$6.2bn, passenger throughput 53.2 million. A report shows in 2024, that of the passengers of the ME3, 84% of Qatar, 77% of Etihad and 66% of Emirates, were connecting passengers. The ME3 model is basically a geographical arbitrage at industrial scale. Their hub-and-spoke system works.
Look at the feature image above and you see New Delhi and Mumbai sit in a similar 8-hour sweet spot. But while Dubai's sweet spot has 60% of the world's population, the Indian cities sweet spot is a juggernaut at 75%. For years, an inapt state-run Air India was unable to make geography work for them. They bundle their domestic West-bound traffic and deposit them in Dubai to feed into Emirates' system.
Tata-SIA-Air India Game PlanThe Tata-SIA JV attempt in 2001 to acquire 49% of Air India fell through after some Indian politicking. But at the time time, there was no Emirati model.
Angry bystanders whine at an inapt SIA walking into another quagmire with their poor record of investments in airlines -- Tiger Air, Virgin, Scoot. Poor management, bad strategy, poor execution -- I don't know and I'll leave it at that. The Air India-Vistara merger, however, makes a lot of business sense. The idea is to emulate Emirates' hub-and-spoke model using New Delhi and Mumbai as the hubs and making geography work for them to challenge ME3 for the East-West traffic. The plan involves:
- Fummel passengers at industrial scale to New Delhi-Mumbai hub
- Air India protects the North-West flank traffic
- SIA protects the South-East flank traffic.
- SIA infuse it's quality and excellent service into Air India
- Indian government builds quality transit infra.
Air India/SIA's challenge to Emirates is real serious. The Gulf airlines should be very worried:
Fighting Back on Premium Experience:
A major reason Dubai dominates the East-West corridor is its reputational consistency (the famous Emirates A380 business class, premium lounges, and seamless transfers). Historically, Air India could not compete on this level, and Singapore Changi Airport was too far out of the way for direct India-to-Europe traffic. To make this multi-hub setup a true threat to Dubai, SIA has deployed its own operations, flight scheduling, and engineering executives directly into Air India. By combining Air India's prime slots in restricted Western markets with SIA's rigorous training and service standards, the partnership is systematically building an Indian transit experience that can realistically siphon corporate, high-yield travelers away from Middle Eastern luxury cabins.
Eliminating the "Detour Penalty" (Distance & Time Advantage)
When a passenger flies from London to Singapore via Dubai, they have to physically fly down into the Middle East, land, wait 2 to 3 hours, and fly back out. This adds a physical "detour" to the map. The Indian Advantage is New Delhi and Mumbai sit on a geographically straighter line between Europe and Southeast Asia. By building a synchronized transit network, Air India and SIA can offer total travel times that are 2 to 3 hours shorter than flying through Dubai. Instead of a detour, stopping in India is mathematically a minor pause along a straight line.
Doubling Airport Capacity to Replicate the "24-Hour No-Curfew":
Emirates excels because Dubai Airport never sleeps and has infinite space for connecting flights. Mumbai and Delhi were historically too bottlenecked to copy this. Government policy is now aligned to structurally double its city airport footprints. Brand-new mega-airports are built specifically with vast, dedicated international transit terminals designed for hyper-fast, friction-free connections.
"Easy Connect" Baggage and Customs Systems:
Dubai’s greatest operational weapon is that passengers can step off one plane and onto another without clearing customs or re-checking bags. Historically, transiting through India required collecting your luggage, changing terminals, and re-clearing security. Now Air India rolled out its Easy Connect platform. A passenger from a domestic Indian city (like Ahmedabad or Amritsar) or an international destination clears customs and checks their bags once at their origin. When they land in Delhi or Mumbai, they walk through a dedicated interior gate directly to their next flight. Their luggage moves automatically behind the scenes
Maximizing Fleet Flexibility via Next-Gen Aircraft:
Emirates relies strictly on massive widebody jets. Air India and its domestic competitors have altered the game by ordering over 1,500 new aircraft. This order heavily features new-generation, long-range narrow body planes (like the Airbus A321neo XLR). These highly efficient single-aisle planes can easily fly 5 to 8 hours nonstop. This allows Air India to profitably fly directly from Delhi into secondary, smaller European and Asian cities where Emirates cannot realistically land a massive double-decker A380.
The Protectionist "Shield" (Starving the Gulf Carriers):
The bilateral agreement between India and Dubai caps Emirates and Flydubai at roughly 65,000 to 66,000 seats per week -- a limit that has not been increased in over a decade. Emirates is completely maxed out on its quotas. Even though millions more passengers want to fly out of India via Dubai, Emirates physically cannot add more flights. Slow liberalization by the government is necessary to protect local aviation investments. By keeping the Gulf carriers artificially "boxed in," the government creates a protected window of time for Air India to deploy its massive new widebody fleet and absorb that excess passenger demand directly.
The "Dual-Hub" Funnel (Bypassing Single-Country Limits)
Because Air India and SIA operate as equity partners (SIA owns 25.1% of the unified Air India group), they can bypass traditional bilateral constraints using their Commercial Cooperation Framework Agreement. They treat Delhi/Mumbai and Singapore Changi as a unified network: Example - If an Indian airline wants to fly passengers to Australia, it is limited by India-Australia bilateral rights. The Solution - Passengers from Europe or India can fly into an Indian hub, and then connect onto an extensive SIA code-share flight via Singapore down to Australia. By routing traffic through Singapore, they leverage Singapore's highly liberal bilateral rights to the rest of the world.
Exploiting "Unused" Bilateral Capital
Historically, foreign airlines fully utilized their traffic rights into India, but Indian carriers (due to a decaying old Air India) left their matching bilateral capacities completely untouched. Air India is now aggressively reclaiming these dormant bilateral rights to western destinations like the UK, the US, and Europe. While European carriers face strict capacity caps into India, Air India faces no such limits on its own side of the bilateral ledger and can launch as many direct flights to the West as its new incoming fleet allows
Multi-hub cooperation:
Instead of letting Dubai act as the universal middle-man for every global connection, SIA and Air India act as a combined two-stage filtration system that captures the traveler on at least one leg of their journey.:
Government policy alignment:
The Indian government is executing a massive infrastructural and policy overhaul in New Delhi and Mumbai. These projects are directly tailored to help Air India build an international hub-and-spoke system capable of rivaling global transit giants like Dubai, Doha, and Singapore. The alignment of infrastructure projects with Air India's operational needs is split across both cities: For example the reposition of terminals at the two airports seem to reclaim the 85% of international transit passengers who currently fly out of smaller Indian cities but choose to transfer through foreign hubs like Dubai or Singapore.
The Logistics of Emirates' "Wave" System:
Emirates coordinates its flights into precise morning, afternoon, and night clusters. The Inbound Wave: At 01:00 AM, 40 to 50 massive widebody jets from all over Europe land at Dubai International Airport (DXB) within a 60-minute window. There is a Sorting Period -- the airport must physically empty for those 40+ planes, route tens of thousands of passengers through transit security, and use complex baggage handling networks to sort luggage from London, Paris, and Frankfurt into piles destined for Singapore, Bangkok, and Sydney. Once everything is sorted, a massive wave of planes takes off toward Asia between 03:30 AM and 04:30 AM. What this means to passengers:
(a) You are stuck 2-3 hours at transit. This plays into Dunai's policy of monetising a captured crowd. Make them spend at the plush and fancy shops in the massive luxury lounges.
(b) To catch that next wave, departing passengers must wait for the entire wheel to turn. If you arrive first in the inbound wave, you wait nearly three hours. If you arrive last, you might only wait 75 minutes.
Fly Air India/SIA and you avoid this. Total time saved on this and the "straight line" savings could be up to 4-5 hours. A massive advantage.
Tata bought Air India from the government in 2022 for ₹18,000 crore by paying cash ₹2,700 crore and taking on debt of ₹15,300 crore. The Indian government took on the balance of Air India's debts of ₹61,131. The government sold Tata a badly damaged airline but cleansed of substantial mess of the past, giving it a chance to be revitalised.
In exchange for Vistara, SIA received S$1.0993bn worth of Air India. SIA reported a capital gains of S$1.0979 on disposal, which means its carrying cost of Vistara was a mere S$1.4mn (1.0993-1.0979). The carrying cost is so low after 10 years of accumulated losses.
SIA made further cash injection of S$822m. So the total cost to SIA for the 25.1% shares in Air India is S$1.0993bn + S$0.822bn = S$1.9213bn. (Ignoring the transaction cost of S$7.3mn)
By grossing up we get the valuation of Air India : S$1.9213/0.251 = S$7.6545
Thus Tata's share of 74.9% = S$5.7332
Using the exchange rate of 63, Tata's share in Air India is ₹487,322,000,000 or ₹48,732 crore
Tata took over the airline from the government in 2022 at only ₹18,000 crore.
So far in social media, no one has pointed this out to the angry bystanders. If they knew they would have screamed Tata "roti-flipped" Air India to SIA at bloated valuation of ₹48,732. Under-table money! Corruption!
The truth is Air India in 2024 is not the same Air India in 2022. Tata has made massive restructuring, ordered new planes, refurbished planes, developed and installed new digital networked platforms essential for a modern airline.
- Restructured their share of 51% interest in Vistara, other airlines owned by them (Air Asia India, Air India Express, Air India) and consolidated them into 2 platforms -- Air India a full service airline, Air India Express a low-cost airline.
- Tata had already started the largest fleet renewal in aviation history (470 aircraft order). They have also leased aircraft to expand more quickly.
- Restored to service grounded aircrafts and decommissioned long-grounded ones.
- Expanded international routes and frequencies (not an easy task)
- Financial restructured : removed a substantial amount of legacy liabilities, funded operation losses, working capital, fleet expansion and transformation.
- Made operational turnaround -- restored grounded aircraft, expanded capacity, recruited new employees, rebuilt engineering, improved safety systems, expanded routes.
- Tata inherited an airline with seriously outdated and fragmented IT and operational systems. They have spent heavily and rebuilt the digital backbone need to run a modern network carrier. There is a tremendous amount of work here. It is not cosmetic IT upgrade, but reconstruction of the full scale operating infra.
- Tamed the IT and operational problems of baggage handling. By 2026 Air India reported baggage reliability of 99.68%, above global benchmark of 99.5%.
By 2024 Air India's strategic value has risen. It is no longer a shrinking airline with a deteriorating fleet. It is a carrier with secured access to massive future fleet and a growth strategy. It's revenue-generating capacity growth was 21%, passenger load factor up by 2% to 85%. operating revenue for FY2023/24 was ₹51,365. Balance sheet becomes better-structured. In short, Tata has reorganised a broken airline by 2024. Air India had become one of the world's largest airline groups by fleet scale.
I would reiterate, an airline can have the best systems, people, planes. but what is the game plan? And that is the New Delhi-Mumbai-Singapore hub-and-spoke system. That is what SIA walked into by taking a 24.1% stake in Air India in exchange for their 49% share of Vistara which had a book value of S$1.4m.
With the merger of Vistara, Air India has an immediate fleet of luxury planes for international routes. These are refurbished from 3-cabin to 2-cabin layouts more suited for the East-West traffic. SIA walked into Air India with clean spreadsheets formalised.
Apart from Air India, the other full-service Indian airlines Indigo, Akasa, Fly91 all all upgrading their fleet. There is a massive fleet growth and engineering transformations taking place in India. Combined, Indian airlines hold a massive pending order book of between 1,700 and 2,000 aircraft. To put this in perspective, Airbus plans to deliver an average of more than two aircraft per week to India for the next decade to satisfy this
Currently, the MRO market for commercial aircrafts done in India is estimated between US$2.2bn to US$4.4bn. The major part of India's MRO, about 80%-90% is outsourced overseas. The government wants MRO ti be a growth sector and it is reduction the Sales Tax down to 5%.
SIA Engineering Company (SIAEC) has a significant and rapidly growing strategic presence in India. Rather than setting up completely independent facilities, SIAEC has established its footprint by deeply embedding itself into the infrastructure overhaul of Air India SIAEC is Air India’s strategic base maintenance partner for developing its brand-new, world-class base maintenance facilities in Bengaluru. Air India and SIAEC signed a MOU to explore creating a formal, co-branded MRO joint venture in India. Air India is the anchor beachhead for SIAEC's advancement in the Indian huge MRO market.
Further capital requirements were foreseeable, given the airline industry's ongoing need for investment in aircraft, maintenance, technology and growth. The partnership aimed to create a major Indian network carrier serving East-West traffic, making additional capital contributions a plausible prospect.
However, no one could have anticipated the subsequent external shocks, including Ahmedabad crash and its effects on passenger confidence and operations, the closure of Pakistan's airspace, and the spikes in oil prices. These events imposed significant financial costs while transformation was still in progress and revenue earning channels have not been fully operational.
The capital needs of Air India in its ongoing transformation is not a current concern as that has been weighed and factored in during the merger. It's a known known. SIA now weighs the drag on its own financials from external shocks on Air India. These are known unknowns that exist in every business.
My personal opinion is Air India carries two market risks that SIA has to accept. One is government policy which in the case of India, there is a trust issue. The other is currency risk.
Angry bystanders of Singapore wants SIA to walk away from a 25.1% stake in the world's largest airline, from a partnership having a hub in an 8-hour sweet spot with 75% of the world's population, in a country with a huge regional population base, with a strategic plan that can capture a significant slice of Emirates, Ethihad and Oman Airlines' East-West highly profitable traffic; a partnership that offers SIA itself to expand the Singapore hub, capitalise on Air India's massive airport slots and codesharing; a partnership that offers SIAEC a foothold into what is expected to be the third largest MRO aviation sector in the world.
A fundamental point about building something is this:
A long period before profitability is not necessarily a problem if the investment is building an asset, network, brand, or strategic position that becomes increasingly valuable with scale.
The fresh capital call for S$500mn has opposition MP Kenneth Tiong making an unwarranted comment that has gone round the world and back - "Singaporeans don't owe Air India a living." All things considered, perhaps one should say "India doesn't owe SIA a living."
Should SIA act like my poker card buddies in the old days who fold on the second open card, which aligns with the wishes of angry bystanders in Singapore, or to paraphrase Hoe Ching, should SIA have the balls to go for the long haul?
To go Home Page, click Arrow on the Top Left.
To be informed of new posts, go Home Page, click the Triple Bar at the Top Left. Fill in your email when Menu appears
The Protectionist "Shield" (Starving the Gulf Carriers):
The bilateral agreement between India and Dubai caps Emirates and Flydubai at roughly 65,000 to 66,000 seats per week -- a limit that has not been increased in over a decade. Emirates is completely maxed out on its quotas. Even though millions more passengers want to fly out of India via Dubai, Emirates physically cannot add more flights. Slow liberalization by the government is necessary to protect local aviation investments. By keeping the Gulf carriers artificially "boxed in," the government creates a protected window of time for Air India to deploy its massive new widebody fleet and absorb that excess passenger demand directly.
The "Dual-Hub" Funnel (Bypassing Single-Country Limits)
Because Air India and SIA operate as equity partners (SIA owns 25.1% of the unified Air India group), they can bypass traditional bilateral constraints using their Commercial Cooperation Framework Agreement. They treat Delhi/Mumbai and Singapore Changi as a unified network: Example - If an Indian airline wants to fly passengers to Australia, it is limited by India-Australia bilateral rights. The Solution - Passengers from Europe or India can fly into an Indian hub, and then connect onto an extensive SIA code-share flight via Singapore down to Australia. By routing traffic through Singapore, they leverage Singapore's highly liberal bilateral rights to the rest of the world.
Exploiting "Unused" Bilateral Capital
Historically, foreign airlines fully utilized their traffic rights into India, but Indian carriers (due to a decaying old Air India) left their matching bilateral capacities completely untouched. Air India is now aggressively reclaiming these dormant bilateral rights to western destinations like the UK, the US, and Europe. While European carriers face strict capacity caps into India, Air India faces no such limits on its own side of the bilateral ledger and can launch as many direct flights to the West as its new incoming fleet allows
Multi-hub cooperation:
Instead of letting Dubai act as the universal middle-man for every global connection, SIA and Air India act as a combined two-stage filtration system that captures the traveler on at least one leg of their journey.:
Government policy alignment:
The Indian government is executing a massive infrastructural and policy overhaul in New Delhi and Mumbai. These projects are directly tailored to help Air India build an international hub-and-spoke system capable of rivaling global transit giants like Dubai, Doha, and Singapore. The alignment of infrastructure projects with Air India's operational needs is split across both cities: For example the reposition of terminals at the two airports seem to reclaim the 85% of international transit passengers who currently fly out of smaller Indian cities but choose to transfer through foreign hubs like Dubai or Singapore.
The Logistics of Emirates' "Wave" System:
Emirates coordinates its flights into precise morning, afternoon, and night clusters. The Inbound Wave: At 01:00 AM, 40 to 50 massive widebody jets from all over Europe land at Dubai International Airport (DXB) within a 60-minute window. There is a Sorting Period -- the airport must physically empty for those 40+ planes, route tens of thousands of passengers through transit security, and use complex baggage handling networks to sort luggage from London, Paris, and Frankfurt into piles destined for Singapore, Bangkok, and Sydney. Once everything is sorted, a massive wave of planes takes off toward Asia between 03:30 AM and 04:30 AM. What this means to passengers:
(a) You are stuck 2-3 hours at transit. This plays into Dunai's policy of monetising a captured crowd. Make them spend at the plush and fancy shops in the massive luxury lounges.
(b) To catch that next wave, departing passengers must wait for the entire wheel to turn. If you arrive first in the inbound wave, you wait nearly three hours. If you arrive last, you might only wait 75 minutes.
Fly Air India/SIA and you avoid this. Total time saved on this and the "straight line" savings could be up to 4-5 hours. A massive advantage.
A Look At The MathThere are some who suggest that Vistara's merger with Air India in Nov 2024 was a way for SIA to relieve itself of a loss making enterprise. Vistara started operation in 2015. For 10 years it has never turned in a profit. It's losses in the last 3 years -- FY2021/22 - ₹2,031 crore, YR 2022'23 - ₹1,303 crore, YR 2023/24 ₹581 crore. So it was actually stabilising by the time of merger.
Tata bought Air India from the government in 2022 for ₹18,000 crore by paying cash ₹2,700 crore and taking on debt of ₹15,300 crore. The Indian government took on the balance of Air India's debts of ₹61,131. The government sold Tata a badly damaged airline but cleansed of substantial mess of the past, giving it a chance to be revitalised.
In exchange for Vistara, SIA received S$1.0993bn worth of Air India. SIA reported a capital gains of S$1.0979 on disposal, which means its carrying cost of Vistara was a mere S$1.4mn (1.0993-1.0979). The carrying cost is so low after 10 years of accumulated losses.
SIA made further cash injection of S$822m. So the total cost to SIA for the 25.1% shares in Air India is S$1.0993bn + S$0.822bn = S$1.9213bn. (Ignoring the transaction cost of S$7.3mn)
By grossing up we get the valuation of Air India : S$1.9213/0.251 = S$7.6545
Thus Tata's share of 74.9% = S$5.7332
Using the exchange rate of 63, Tata's share in Air India is ₹487,322,000,000 or ₹48,732 crore
Tata took over the airline from the government in 2022 at only ₹18,000 crore.
So far in social media, no one has pointed this out to the angry bystanders. If they knew they would have screamed Tata "roti-flipped" Air India to SIA at bloated valuation of ₹48,732. Under-table money! Corruption!
The truth is Air India in 2024 is not the same Air India in 2022. Tata has made massive restructuring, ordered new planes, refurbished planes, developed and installed new digital networked platforms essential for a modern airline.
- Restructured their share of 51% interest in Vistara, other airlines owned by them (Air Asia India, Air India Express, Air India) and consolidated them into 2 platforms -- Air India a full service airline, Air India Express a low-cost airline.
- Tata had already started the largest fleet renewal in aviation history (470 aircraft order). They have also leased aircraft to expand more quickly.
- Restored to service grounded aircrafts and decommissioned long-grounded ones.
- Expanded international routes and frequencies (not an easy task)
- Financial restructured : removed a substantial amount of legacy liabilities, funded operation losses, working capital, fleet expansion and transformation.
- Made operational turnaround -- restored grounded aircraft, expanded capacity, recruited new employees, rebuilt engineering, improved safety systems, expanded routes.
- Tata inherited an airline with seriously outdated and fragmented IT and operational systems. They have spent heavily and rebuilt the digital backbone need to run a modern network carrier. There is a tremendous amount of work here. It is not cosmetic IT upgrade, but reconstruction of the full scale operating infra.
- Tamed the IT and operational problems of baggage handling. By 2026 Air India reported baggage reliability of 99.68%, above global benchmark of 99.5%.
By 2024 Air India's strategic value has risen. It is no longer a shrinking airline with a deteriorating fleet. It is a carrier with secured access to massive future fleet and a growth strategy. It's revenue-generating capacity growth was 21%, passenger load factor up by 2% to 85%. operating revenue for FY2023/24 was ₹51,365. Balance sheet becomes better-structured. In short, Tata has reorganised a broken airline by 2024. Air India had become one of the world's largest airline groups by fleet scale.
I would reiterate, an airline can have the best systems, people, planes. but what is the game plan? And that is the New Delhi-Mumbai-Singapore hub-and-spoke system. That is what SIA walked into by taking a 24.1% stake in Air India in exchange for their 49% share of Vistara which had a book value of S$1.4m.
With the merger of Vistara, Air India has an immediate fleet of luxury planes for international routes. These are refurbished from 3-cabin to 2-cabin layouts more suited for the East-West traffic. SIA walked into Air India with clean spreadsheets formalised.
India's MRO Market Is ExplodingIndia is experiencing one of the most aggressive growth trajectories in global aviation. Powered by massive aircraft orders from domestic carriers and aggressive government tax reforms, India is on track to become the third-largest civil aviation market globally for Maintenance, Repair and Overhaul of aircrafts. .
Apart from Air India, the other full-service Indian airlines Indigo, Akasa, Fly91 all all upgrading their fleet. There is a massive fleet growth and engineering transformations taking place in India. Combined, Indian airlines hold a massive pending order book of between 1,700 and 2,000 aircraft. To put this in perspective, Airbus plans to deliver an average of more than two aircraft per week to India for the next decade to satisfy this
Currently, the MRO market for commercial aircrafts done in India is estimated between US$2.2bn to US$4.4bn. The major part of India's MRO, about 80%-90% is outsourced overseas. The government wants MRO ti be a growth sector and it is reduction the Sales Tax down to 5%.
SIA Engineering Company (SIAEC) has a significant and rapidly growing strategic presence in India. Rather than setting up completely independent facilities, SIAEC has established its footprint by deeply embedding itself into the infrastructure overhaul of Air India SIAEC is Air India’s strategic base maintenance partner for developing its brand-new, world-class base maintenance facilities in Bengaluru. Air India and SIAEC signed a MOU to explore creating a formal, co-branded MRO joint venture in India. Air India is the anchor beachhead for SIAEC's advancement in the Indian huge MRO market.
Future capital needs vs external shocks.By the time SIA acquired a 25.1% stake in Air India, Tata had completed much of the initial rescue restructuring, while the broader transformation was still underway. The program included deploying a modern technology platform, renewing the fleet, strengthening operations and integrating Vistara.
Further capital requirements were foreseeable, given the airline industry's ongoing need for investment in aircraft, maintenance, technology and growth. The partnership aimed to create a major Indian network carrier serving East-West traffic, making additional capital contributions a plausible prospect.
However, no one could have anticipated the subsequent external shocks, including Ahmedabad crash and its effects on passenger confidence and operations, the closure of Pakistan's airspace, and the spikes in oil prices. These events imposed significant financial costs while transformation was still in progress and revenue earning channels have not been fully operational.
The capital needs of Air India in its ongoing transformation is not a current concern as that has been weighed and factored in during the merger. It's a known known. SIA now weighs the drag on its own financials from external shocks on Air India. These are known unknowns that exist in every business.
My personal opinion is Air India carries two market risks that SIA has to accept. One is government policy which in the case of India, there is a trust issue. The other is currency risk.
Angry bystanders of Singapore wants SIA to walk away from a 25.1% stake in the world's largest airline, from a partnership having a hub in an 8-hour sweet spot with 75% of the world's population, in a country with a huge regional population base, with a strategic plan that can capture a significant slice of Emirates, Ethihad and Oman Airlines' East-West highly profitable traffic; a partnership that offers SIA itself to expand the Singapore hub, capitalise on Air India's massive airport slots and codesharing; a partnership that offers SIAEC a foothold into what is expected to be the third largest MRO aviation sector in the world.
A fundamental point about building something is this:
A long period before profitability is not necessarily a problem if the investment is building an asset, network, brand, or strategic position that becomes increasingly valuable with scale.
The fresh capital call for S$500mn has opposition MP Kenneth Tiong making an unwarranted comment that has gone round the world and back - "Singaporeans don't owe Air India a living." All things considered, perhaps one should say "India doesn't owe SIA a living."
Should SIA act like my poker card buddies in the old days who fold on the second open card, which aligns with the wishes of angry bystanders in Singapore, or to paraphrase Hoe Ching, should SIA have the balls to go for the long haul?
To go Home Page, click Arrow on the Top Left.
To be informed of new posts, go Home Page, click the Triple Bar at the Top Left. Fill in your email when Menu appears
Comments