Friday, December 02, 2022

Singapore’s Air India runway promises profit, potholes

For decades, Singapore Airlines Ltd has wanted to take pole position in India, tipped to be the world’s third-largest aviation market by the middle of the decade, if not sooner.

Now that the opportunity to be a 25% owner of the nation’s largest international and second-largest local carrier has come knocking, chief executive Goh Choon Phong is happy to write a US$250mil (RM1.11bil) cheque.

But India’s siren song can also be treacherous.

Its heavily regulated sectors, such as telecommunications and aviation, have a history of being unpredictable.

Singapore Telecommunications Ltd got lucky in its choice of partner. Bharti Airtel Ltd remains a solid No. 2 in the Indian wireless market after years of intense upheaval.

Goh would hope for the same stability from his partner, the 154-year-old Tata Group – perhaps even more, given the aviation industry’s natural tendency to destroy capital.

All that’s in the future, though. Right now, it’s handshake time.

Vistara, a joint venture of the Tata Group and SIA, is being merged with Air India.

The loss-making national carrier went to the local conglomerate when New Delhi sold it last year.

Now, Tata will hold 74.9% of the merged entity; Singapore Air will fork out a little over US$250mil (RM1.11bil) for 25.1%.

An expansion is also on the cards. Air India CEO Campbell Wilson – a Singapore Air veteran – wants to triple his fleet in five years. That purchase, among the most aggressive in the industry after the pandemic, may increase SIA’s investment by another US$615mil (RM2.75bil).

The Indian side will bring in proportionately more.

Covid-19 has underscored the danger of relying too heavily on a single market.

A multi-hub strategy, in which airlines owned by Singapore Air will benefit from demand outside the small city-state, may not offer foolproof insurance against a global pandemic when everything shuts down at once.

But it does offer risk mitigation in the reopening phase. The company enjoys the backing of a triple-A-rated government and was fortunate: Authorities in its home market were keen to drop travel restrictions as soon as they could.

Hong Kong-based rival Cathay Pacific Airways Ltd and Chinese carriers weren’t as lucky.

As a result, SIA is in an expansionary, deal-making mode, while Cathay is only now seeing “a bright light at the end of tunnel.”

New Zealand native Wilson is new both to the job and the terrain – he arrived in June as the first foreign-born boss in Air India’s history.

Even as he wraps up the merger with Vistara, his two shareholders will look to him to repeat his success at Scoot, the Singaporean short-haul carrier.

The immediate task is to shake InterGlobe Aviation Ltd’s Indigo, which has a 57% share of India’s domestic aviation market.

Middle East carriers like Emirates and Etihad Airways PJSC dominate travel to and from the nation through their hubs in Dubai and Abu Dhabi, respectively.

Wilson’s other challenge will be to manage different cultures.

As a 75% shareholder, Ratan Tata, the group patriarch, will want his executives to be in the cockpit, if not the pilot’s seat.

After all, a more passive approach hasn’t gotten the 84-year-old aviation enthusiast anywhere.

02/12/22 Andy Mukherjee/The Star

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