Singapore Airlines loses almost $800mn on Air India bet — with more pain forecast

{"text":[[{"start":9.236,"text":"Singapore Airlines has booked operating losses of about S$1bn ($780mn) on Air India less than two years after taking a 25 per cent stake in the ailing carrier, as analysts warn of more pain ahead."}],[{"start":24.22,"text":"The investment in Air India in November 2024 — just months before a catastrophic plane crash and ahead of this year’s jet fuel crisis that has ravaged the global aviation industry — now looks spectacularly badly timed."}],[{"start":37.794,"text":"Air India has also suffered from being blocked from Pakistan airspace, affecting many of its routes, a weakening rupee and broader supply chain problems affecting the worldwide airline sector."}],[{"start":49.24,"text":"“It has been an annus horribilis for Air India,” said a Singapore Airlines executive. “Air India is trying to undergo a major transformation — the likes of which have probably never been seen in the airline industry — while also dealing with all these other issues. The timing could not have been worse.”"}],[{"start":67.123,"text":"Some industry commentators point to Singapore Airlines’ chequered history with foreign forays and question whether the company was repeating the same mistakes."}],[{"start":75.8,"text":"“I do not expect Air India to become profitable over the next few years,” said Jason Sum, an analyst at the bank DBS. “Given the scale of the losses and the time needed to rebuild the airline, any meaningful earnings contribution to Singapore Airlines are likely to remain several years away.”"}],[{"start":null,"text":"

"}],[{"start":94.03,"text":"Singapore Airlines’ investment in Air India can be traced back to the 2013 launch of Vistara, another Indian airline, in a joint venture with Tata Sons, India’s biggest conglomerate."}],[{"start":105.663,"text":"When Tata began exploring taking over the lossmaking Air India from Narendra Modi’s government in 2021, it enlisted Singapore Airlines as an unofficial adviser on the privatisation, according to people with knowledge of the talks."}],[{"start":118.332,"text":"At the time, executives at Singapore Airlines were looking for a way of expanding the business outside the constricted domestic market and were attracted to India’s growth potential."}],[{"start":128.223,"text":"They saw the opportunity to take a large stake in an Indian airline and benefit from surging demand in the market over the coming decades as too good to miss, despite the need for heavy investment in the early years to turn the business around."}],[{"start":142.84,"text":"Singapore Airlines’ management decided to fold Vistara into Air India and — as well as contributing an additional S$822mn ($642mn) of capital — Singapore Airlines took a 25 per cent stake in the business, with Tata owning the rest. The transaction resulted in a one-off S$1.1bn accounting gain for Singapore Airlines."}],[{"start":165.48,"text":"The airline’s management team knew that Air India, which had grown bloated under state ownership with an ageing fleet and poor operational reliability, would require years of significant investment to turn it around."}],[{"start":176.399,"text":"Last March, just five months after signing the deal, Singapore Airlines was required to inject a further S$167mn into the business, bringing its total capital investment to S$989mn ($772mn)."}],[{"start":194.32,"text":"But three months later, Air India flight 171 crashed moments after taking off from Ahmedabad airport, resulting in 260 deaths — including all but one of the 242 passengers — in the worst aviation disaster for more than a decade."}],[{"start":null,"text":""}],[{"start":207.721,"text":"Indian authorities are yet to conclude their investigation into the crash, but Air India cut back its schedule to inspect its Boeing 787 fleet and increase pre-flight checks."}],[{"start":217.996,"text":"The renewed conflict between India and Pakistan last year led the latter to close its airspace to Indian carriers, which Air India said caused $600mn of losses because of flight disruption."}],[{"start":229.65,"text":"Meanwhile, Air India has also been buffeted by pressures hitting other airlines around the world, including disruptions to supply chains that have delayed fleet renewals and cabin upgrades, as well as the Middle East conflict that has sparked a worldwide jet fuel crisis."}],[{"start":244.387,"text":"Added to the mix, India’s rupee has depreciated heavily against the dollar over the past year, which has an outsized impact on Air India as most of its costs are in the US currency."}],[{"start":254.795,"text":"Tata Sons’ N Chandrasekaran — who on Wednesday stepped down as chair amid a succession row — has called the litany of problems affecting Air India a “perfect storm” and said the transformation of the business would take as long as a decade."}],[{"start":268.4,"text":"Last week, Tata said Tewolde Gebremariam would become Air India’s chief executive after more than a decade running Ethiopian Airlines, which became Africa’s largest and most profitable carrier during his tenure."}],[{"start":null,"text":""}],[{"start":280.04,"text":"Air India’s woes resulted in a S$945mn ($738mn) loss for Singapore Airlines in the 12 months to the end of March this year. It has since said its losses for the subsequent three months were S$41mn higher than the previous quarter, without giving total figures."}],[{"start":299.86,"text":"“The main concern for Singapore Airlines is whether they will be called on to invest more in the business,” said Hashim Osman, an analyst at Phillip Securities. “With Air India being cash flow negative, the need for a further capital injection is high.”"}],[{"start":315.22,"text":"Singapore Airlines told the FT that the board would consider any additional requests for capital from Air India, taking into account other capital requirements for the group and the Indian carrier’s business strategy."}],[{"start":326.12,"text":"“Air India is making tangible progress in its transformation efforts across the customer journey and experience, fleet and network growth, on-ground and in-flight products and services, and operational performance,” the company said."}],[{"start":340.56,"text":"Speaking at the group’s annual results this year, Singapore Airlines chief executive Goh Choon Phong was asked when shareholders could expect to see a turnaround from Air India. “It is going to be a long game,” he responded. “There is no shortcut.”"}],[{"start":355.4,"text":"His company’s ill-fated co-ownership of Air India has drawn parallels with its previous attempts at global expansion."}],[{"start":361.906,"text":"In 2004, Singapore Airlines booked hundreds of millions of dollars in losses after selling its stake in Air New Zealand after just four years. It also suffered heavy losses exiting investments in Virgin Atlantic and Virgin Australia — the latter collapsed in 2020 and was taken over by Bain Capital."}],[{"start":380.473,"text":"“Air India is probably a higher-risk and more capital-intensive investment than Singapore Airlines’ previous overseas deals, although the potential reward is much larger,” said DBS’s Sum."}],[{"start":391.693,"text":"“If execution is successful, the returns could be much more meaningful, but so could the losses if the turnaround takes longer than expected.”"}],[{"start":399.465,"text":"Air India did not respond to a request for comment."}],[{"start":402.76,"text":"Additional reporting by Chris Kay in Mumbai"}],[{"start":408.12,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1786517614_2728.mp3"}