Singapore Airlines Pursues Business Opportunities with Air India

World Airline News, August 18, 2000

On the eve of a possible privatization, Air India has reportedly named one of the top contenders for partial ownership of the airline as a potential business partner in the dry lease of aircraft.

The Hindustan Times reported on Aug. 11 that Singapore Airlines (SIA) and Airbus were main competitors for a dry lease arrangement that would include two to six A310 aircraft for a three-year period and one Boeing [BA] 747-400 for three to five years. The paper indicated the two manufacturers were scheduled to meet with the airline later this month to discuss the aircraft.

SIA confirmed that it has discussing the possibility of leasing aircraft to Air India, but would not comment on the effect this could have on a bid for the Indian carrier

This development comes after a July 11 announcement by the Indian government naming JM Morgan Stanley Ltd. as the global advisor for the airline's privatization. Under the privatization plan, a foreign carrier is allowed to own 26 percent of the airline.

At that time World Airline News reported SIA and Indian conglomerate TaTa Group were close to finalizing a bid. One source told WAN SIA's ties to Air India run deep due to the fact that some Indian expatriates now have management positions within SIA, and those connections might give SIA credibility other potential bidders may be missing.

However, the Indian government's view of SIA has not always been favorable. "SIA is seen as the aggressor," said Ian Thomas, senior consultant for the Center of Asia Pacific Aviation (CAPA). "The airline has made clear it wants control over all the investments it takes up," he added.

But the Indian government is also prone to alter its views if a valuable opportunity presents itself, according to Thomas. "(The government) has shown itself to be a pragmatic animal. If they see an advantage in operational terms, they realize problems of the past are not necessarily problems of the future."

India's leaders also recognize SIA's status as one of the region's most stable carriers. "They would bring a significant amount of strength to Air India," said Thomas. He indicated a primary way to utilize that strength would be to increase Air India's international presence.

Other industry watchers indicate SIA's strategy is difficult to identify. "All I can say is the potential dry leasing) may be part of a way to establish an equity strategy or it may not," said a source.

Thomas said a potential dry leasing arrangement might be an effective method for SIA to strengthen its ties to India's flagship carrier. "If (SIA is) doing what they can to further the relationship then this deal would be an ideal way to do that," he explained. Thomas told WAN that Singapore Airlines is anxious to enter into Indian because it is still in an immature and developing market.

The decision by Air India to dry lease the Airbus and Boeing aircraft marks a shift in strategy for the carrier. "They've been very backward in growth," said Craig Jenks of the New York-based Airline/Aircraft Project.

Jenks told WAN Air India is losing market share and it uses an oscillating approach to leasing. "A few years ago they were wet leasing and it turned out to be a fiasco," he said. In the end Air India had to return four to five aircraft and cut a number of routes. Jenks then indicated Air India began carrying Indian laborers into the Gulf territories, but now the airline has swung the pendulum back and will probably return to some of the markets it cut a few years ago.

Air India is also battling first quarter losses of Rs28 crore (US$650,000) from April through June. Factors contributing to the loss include oil prices, airport landing and navigation charges and the rupee's weak showing against the dollar.

The carrier's fleet was also a contributor to its less than impressive operating results. "SIA traditionally and historically buys and disposes of aircraft while they're young," said Jenks. "The aircraft in question are around 11-13 years old. That's reasonably young for Air India," he added. ?

Tender for A310 Aircraft Financial Bid

1. Quotations for dry lease shall be in US dollars. Air India shall be responsible for aircraft maintenance, crew and insurance. The aircraft will be insured for a value not higher than their acquisition price.

2. The rate should include positioning/de-positioning of aircraft to/from Mumbai (Bombay), painting the aircraft in Air India colours and painting the aircraft in lessor's colours at the end of lease period.

3. The aircraft will be delivered to Air India fresh from 'C' check. At the end of lease period, the aircraft will be returned by Air India fresh out of 'C' check.

4. Payments made to the lessor will be subject to Indian tax liabilities which will be borne by the lessor and will be deducted at source, if applicable.

5. Monthly lease rental will be paid in advance within the first three working days.

6. The offer should be valid for a period of 3 months from the tender due date.

7. Any deposit amount, commitment fee, etc. required by the lessor will attract a notional interest rate of 8 percent p.a. for evaluation purposes.