What makes Air India's ground-handling arm more desirable than airline?

While govt is still struggling to find suitors for Air India's core airline business, its fully owned subsidiary AIATSL has already received interest from two players

Air India’s fully owned ground-handling services subsidiary Air India Air Transport Services Ltd (AIATSL) seems to be drawing more interest from potential bidders than the core airline business. At least two companies – the Delhi-based Bird group and Turkish firm Celebi Holdings – are interested in buying AIATSL, the government has announced.

What makes AIATSL so attractive to the country’s private players which, mostly, already have similar operations? The answer might lie in the scale of the Air India subsidiary’s operations. The company provides ground-handling services at 67-70 airports across India which makes it by far the most dominant player. More importantly, it has a secure and stable client in Air India, which accounts for 70 per of its revenues. Also, it controls a significant part of all ground-handling done for international airlines, including the biggies like Emirates and Singapore Airlines.

By comparison, Bird group or Celebi are much smaller players, despite being the largest independent private sector operators. Bird group operates its ground-handling business from seven cities – Delhi, Mumbai, Bengaluru, Kochi, Ahmedabad, Goa and Gaya – which account for 70-80 per cent of all flights in the country. Celebi operates from three airports – Delhi, Mumbai and Ahmedabad. Besides these, there also are other players like the Air India-SATS JV, which operates at five airports; Menzeis, Bhadra International and Indo-Thai.

Clearly, for both Bird Group and Celebi, acquiring AIATSL means a significant increase in their share of the overall ground-handling business. An acquisition will also give them a footprint at more airports and that will be a very attractive proposition as India pushes forth on its regional connectivity drive.

However, a final decision on the valuation of AIATSL, ground handling companies say, can be arrived at only after due diligence. The company’s last available stated balance sheet is for 2013-14. Based on those figures, the company is in the black, with a profit after tax of Rs 2.19 crore.

With too many players in the business, ground-handling is a highly competitive field, and servicing fees are also falling, say companies. In many of the top cities, there already are as many as three players vying for the same airlines.

Amid high competition, fees for a single turnaround of an aircraft (for which airlines pay them) have come down to $1,100, or a fourth of what it was a decade ago, says a senior executive of a ground-handling company. Even domestic fee for a turnaround has come down to as low as Rs 7,500-15,000, having dropped substantially in the past few years.

Besides, the market available to private operators is limited only to 30 per cent of the total ground-handling business (domestic and international). That is because domestic airlines like Jet Airways or IndiGo do their own ground handling. And Air India gets its own subsidiary to do it. The three account for 90 per cent of the total ground-handling business in India.

Companies like Celebi and Bird, therefore, rely on international carriers outsourcing their ground handling. Among domestic operators, the likes of Air Asia and Vistara outsource their ground handling, but these two, with only 27 planes, are currently very small players.

With prices for their services falling, private operators say they can only grow their revenues, or keep them at the same level, by increasing the volume of aircraft turnaround handled every day. That can happen in two ways – either by grabbing a larger share of the additional flights flown by airlines as they expand, or simply by buying out AIATSL. 

What is ground-handling business?

Ground-handling business constitutes all operations of an aircraft after it switches off its power. These include baggage handling, check-ins, cleaning of airplanes, preparing boarding and departure, among other things.

What makes AIATSL attractive?

• AIATSL has operations at 67-70 airports across India which makes it the biggest player in the ground-handling business

• Nearly 70 per cent of AIATSL’s business comes from Air India alone. Besides, it also handles ground-handling for international clients like Emirates and Singapore Airlines

• Third-party private sector ground-handling companies compete for only 30% of the market, as many big airlines do their ground-handling on their own.

• In terms of value, international carriers account for nearly 30 per cent of the business.

• There is a cut-throat competition in the ground-handling business, with over seven operators vying for a share of the market