On June 15, news broke that Singapore Airlines Limited (SINGY) had expressed interest in increasing its 25.1% stake in the Tata Group-operated Air India, secured as part of its merger with Vistara that was announced in November 2022 and due to be completed by March 2024. The report claimed that SINGY could gradually increase its stake to 40% to have more skin in the game.
However, the report was soon followed by a denial by SINGY, with its spokesperson confirming that there is no change in SIA’s position from the November 2022 announcement.
However, Goh Choon Phong, the CEO of SINGY, reaffirmed his support by stating, “With this merger, we have an opportunity to deepen our relationship with Tata and participate directly in an exciting new growth phase in India’s aviation market.”
The salt-to-steel conglomerate Tata Group operates three airlines in India: Air India (with Air India Express as its low-cost subsidiary), Air Asia India, and Vistara (a 51:49 joint venture between Tata Sons and SINGY).
The merger of Vistara and Air India into a single entity (Air India), with SIA investing INR 20.59 billion, is under review by the Competition Commission of India (CCI).
With SIA’s expertise in operating a successful airline, particularly when dealing with powerful players such as IndiGo as well as international competition like Emirates and Qatar Airways, it is understandable why Air India might have reportedly been keen on a potential stake increase.
Pinch of Salt
“If something cannot go on forever, it will stop.” The obviousness of this observation made by Herb Stein was what made it famous.
In our June 13 article, we discussed how, despite air carriers turning to bigger airplanes, even on shorter routes and jumbo-jets, such as the Boeing 747 and the Airbus A380, being brought back to help ease airport congestion and work around pilot shortages, Delta Air Lines, Inc. (DAL) wishful extrapolation of the narrative of “revenge travel” could rapidly unravel.
While there remain valid reasons to doubt whether business travel is ever going back to normal and that the pent-up demand might not be enough to sustain the momentum, the battle for Indian skies comes with its own set of challenges.
When the facts, such as 90% of wage earners in India earn INR 25000 or below, the seemingly unending exodus of millionaires from India, and Indigo ordered 500 Airbus aircraft soon after Air India’s combined order of 470 aircraft from both Boeing and Airbus, are taken into consideration, it only takes willful suspension of disbelief to equate low penetration with growth potential.
Hence the possibility that civil aviation in India could be a bubble waiting to burst or at least a profitability sink for air carriers can only be ignored by investors, including SINGY, at their own peril.
With The Boeing Company (BA)still on the back foot and playing catch up to its European rival, Airbus SE (EADSY), the latter, with ROCE and ROTC better than the industry average, could be a common denominator that could give investors (relatively) safe exposure to the heated battle for a greater share of the pie of the Indian sky.