Singapore partner has first rights on Air India's ground-handling unit

Singapore Air Transport Services can exercise its right of first refusal for taking over the 50 per cent stake of Air India in its most profitable unit that provides ground-handling services at major metro airports across the country.

“Since it is a 50:50 joint venture, Singapore Air Transport Services will be asked to exercise the right of first refusal to absorb Air India’s stake,” an official said.

Singapore’s leading ground-handling company, Singapore Air Transport Services, and Air India set up a joint venture in April 2010, Air India-Singapore Air Transport Services Airport Services (AISATS), for ground- and cargo-handling activities at the Delhi, Mumbai, Hyderabad, Bengaluru, Thiruvananthapuram, and Mangaluru airports.

Singapore Air Transport Services would have 30 days to exercise its right from the time Air India offered to shed its stakes in AISATS, according to the articles of association of the joint venture, an Air India executive said. “The transfer of Air India’s shares to Singapore Air Transport Services should be done within 45 days if the latter exercises the right of first refusal,” he added.

Singapore Air Transport Services did not respond to an e-mail questionnaire. The Air India executive said Singapore Air Transport Services was still evaluating its options. “They have not given us a final word yet,” he added.

AISATS is the most profitable unit of Air India and its profits in 2016-17 were Rs 660.3 million, up from Rs 546.78 million in 2015-16. It earned revenues worth Rs 6.08 billion in 2016-17 against Rs 5.57 billion in 2015-16.

“The ground-handling business of Air India, Alliance Air, and Air India Express naturally comes to AISATS and contributes a major chunk to its revenue. If there is a management change in the national carrier and its subsidiaries, there may be a review of their contracts. This is the uncertainty Singapore Air Transport Services is facing now,” an official explained.

Besides Air India and its subsidiaries, AISATS has also provided ground-handling services to domestic airlines Vistara, Go Air and Air Costa, international airlines, including Kuwait Airways, TruJet, Etihad Airways, and Emirates, and cargo companies such as FedEx and Malaysia Airlines Freighter.

“Singapore Air Transport Services has far more opportunities across Asia for expansion, given the speed and wide proliferation of low-cost carriers at many airports. Investing in these makes more sense than taking on the Air India stake. The region is awash with new airlines; Singapore Air Transport Services should be exploring these options first,” Saj Ahmed, chief analyst at StrategicAero Research, said.

Singapore Air Transport Services recently formed a joint venture with Malaysian airline AirAsia to expand business in the region. 

Singapore Air Transport Services has also shown interest in buying Air India’s ground-handling subsidiary Air India Air Transport Service that provides ground-handling at all domestic airports other than the ones where AISATS has a presence. The airports at which AISATS provides ground handling services account for 51 per cent of the total aircraft movement on domestic and international routes.
 

Air India formed the joint venture with Singapore Air Transport Services after the government’s policy had set a requirement that international experience in ground handling was necessary for greenfield airports. 

The Union government last June agreed in principle to a strategic disinvestment in Air India and its subsidiaries. A group of ministers, led by Finance Minister Arun Jaitley, has decided to sell Air India and Air India Express together and transfer four of its subsidiaries, Air India Air Transport Service, Air India Engineering Services, Airline Allied Service and Hotel Corporation of India, into a separate special purpose vehicle so that these can be hived off separately.

The special purpose vehicle will also house the airline's accumulated working capital loan not backed by any asset, non-core assets, paintings and other non-operational assets.