Singapore Airlines' plan to launch a joint venture start-up in India has run into more trouble. The country's civil aviation minister has cast doubt on the plan's official approval by India's Foreign Investment Promotion Board (FIPB).
SIA has been lobbying with Tata Industries to launch the airline since 1994 but the minister, C M Ibrahim, says he remains opposed to foreign stakes in Indian airlines and aims to block the venture when it comes before the country's cabinet. SIA planned to take a 40 per cent stake in the US$700 million joint venture, with Tata taking the balance. The five-year business plan involves the purchase of 19 jets operating to 13 domestic points, rising to 28, and the employment of 2,500 staff.
SIA remains tight-lipped about Ibrahim's intervention bar expressing delight at the FIPB approval. Tata's vice-president for corporate affairs, Ravi Dubey, says he is 'hopeful' about the eventual outcome of the bid.
However, analysts in the region are more pessimistic and point to a bruising battle within India's ruling United Front coalition over aviation policy. To protect state-owned Indian Airlines, some claim Ibrahim has recommended to cabinet that foreign investors be barred from domestic airlines altogether, though support for airport infrastructure projects would be welcomed.
A proposed new aviation policy would support this protectionist stance by requiring foreign-supported carriers to operate a wide range of unprofitable services. They would also have to undertake contingency operations such as flying pilgrims to the Hadj in Saudi Arabia and evacuating stranded Indian citizens from troublespots around the world.
The new policy would also remove disparities in US dollar and rupee-denominated fares in the domestic sector. Air-India and other international carriers charge lower US dollar-denominated fares for passengers connecting with domestic flights. The rules would end this practice and push up tariffs to Indian Airlines levels.
Meanwhile, Singapore Airlines is doing some strategic thinking which could take it down the road towards becoming a 'virtual' airline, focusing on flight operations and contracting everything else out to private companies. The airline's deputy chairman, Dr Cheong Choong Kong, says SIA is looking at the concept of floating off major subsidiaries such as Singapore Air Terminal Services (Sats), SIA Engineer-ing and even its wholly owned regional operator, SilkAir.
He suggests the subsidiaries could eventually be floated off but stresses that the parent company does not need to raise capital this way. 'There's a lot of value in each of those three companies that's not totally reflected in SIA's consolidated balance sheet,' says Cheong in an interview in the airline's staff magazine. 'A separate listing will realise that value for the SIA shareholder.'
Cheong also signals the transfer of more SIA functions offshore, where work could be performed 'more cheaply without loss of quality'.The airline is already conducting revenue accounting in Beijing and software development in Madras, and is beginning to carry out aircraft maintenance in Xiamen. 'A major solution lies in starting airline-related joint ventures overseas, where the costs are lower, and the growth rates higher because growth is from a lower base, all of which means higher rates of return for the group,' Cheong says.
Source: Airline Business
