Singapore Airlines 'to seek tougher terms' for any fresh Air India funding

Singapore Airlines, a state-owned enterprise backed by Temasek, is reportedly seeking stronger governance rights and greater influence over management before approving additional capital for Air India, according to two sources familiar with the situation. These proposed conditions could include increased board voting power and requirements for the Indian airline to reduce its losses.

Temasek, the majority shareholder of Singapore Airlines, would not contribute the capital or mediate in Air India's decision-making processes concerning the investment.

The discussions of conditions emerged following a Reuters report last month stating Air India was seeking around $1.5 billion in fresh equity from its owners. Tata Sons, Air India's majority owner, has approved a $1.1 billion infusion, representing its proportional share. Singapore Airlines holds the remaining 25.1% stake. All four sources declined to speak on the record due to the information not being publicly available yet.

In response to the potential investment, Singapore Airlines stated that its board would meticulously assess any request for additional capital, considering Air India's business strategy, operating cash flow, and other capital requirements. Temasek did not comment on the speculation surrounding the conditions. Both Tata and Air India did not respond to requests for comment.

The demand for tougher terms comes as Singapore Airlines faces scrutiny to justify its increasing investment in Air India, which incurred a $2.33 billion loss in the financial year ending March. This loss has significantly impacted the Singaporean carrier's profits. Singapore Airlines has faced losses in several past overseas investments, and Tata stated in July that Air India's turnaround could take up to a decade.

The Indian carrier appointed Tewolde Gebremariam, a former Ethiopian Airlines head, as its new CEO to replace former Singapore Airlines executive Campbell Wilson.

Singapore Airlines has limited formal control over Air India. Under a 2022 merger agreement that merged its 49%-owned Indian subsidiary, Vistara, into Air India, it received a single board seat held by its CEO, Goh Choon Phong. Its stake of over 25% allows it under Indian company law to block special resolutions for significant corporate matters, such as mergers, share buybacks, and voluntary winding up.

Air India's funding request prompted an opposition lawmaker in Singapore to call for Temasek's funds not to be used to support the airline. Singapore Airlines affirmed on Tuesday that its investments in India have and will continue to be funded internally, with S$10.48 billion in cash reserves and S$3.24 billion in undrawn credit lines as of June-end.

Temasek endorsed Singapore Airlines' investment in Air India last month, emphasizing its long-term outlook on the decision. Singapore's Senior Minister K Shanmugam confirmed on Saturday that any decision to invest in Air India rests with Singapore Airlines, and Temasek expects the airline to make investment choices responsibly. The responsibility to establish safeguards, governance expectations, and performance targets for any further investment in Air India lies with Singapore Airlines, according to one source.

Singapore Airlines aims to profit from India's long-term aviation growth while managing the risks of a major airline turnaround, the source added. Temasek has also invested significantly in India across various sectors, including healthcare, financial services, consumer goods, and technology, and has identified the country as a key growth market in its portfolio.