Government approves Air India-SATS joint venture

The Indian Government yesterday gave post-facto approval to the formation of following Joint Venture Companies (JVC) between the National Aviation Company of India Limited (NACIL) which is the combined Air India and Indian Airlines entity, but branded Air India now, and Singapore Airport Terminal Services (SATS). The joint venture companies are more commonly referred to AI-SATS or Air India-SATS:

For Cargo Handling at Bangalore International Airport Limited (BIAL), Bangalore with 50:50 shareholding.

The project cost is estimated to be Rs.99.10 crores. (Rs. 5 Crore ~ $1 million). The debt-equity ratio will be 50:50 and each partner's equity contribution would be Rs.30 crores in the total share capital of Rs.60 crores. The balance would be borrowed from Banks and Financial Institutions. The JVC is estimated to be profitable during its operation and expected to yield an IRR of 17% over a 15 year period.

To undertake the Ground Handling activities at Bangalore International Airport Limited (BIAL), Bangalore with 50:50 shareholding.

The 50-50 joint venture company would involve investment of around Rs.72.78 crores, out of which Rs.50 crores would be share capital and the balance raised from banks as commercial borrowings. As per estimates, it is expected to yield an IRR of 35% over a period of 10 years.

To undertake the Ground Handling activities at GMR Hyderabad International Airport (GHIAL), Hyderabad with 50:50 shareholding.

The JVC for ground handling services at GHIAL would involve investment of approximately Rs.80 crores, out of which Rs.60 crores would be share capital and the balance capital would be raised from banks as commercial borrowings. The equity share holding of AI and SATS would be in the ratio of 50:50. As per estimates, it is expected to yield an IRR of approximately 41% per annum over a period of 7 years.

(iv) To undertake Ground Handling at Mumbai, Delhi and other Indian Airports excluding Bangalore, Hyderabad and Cochin with 50:50 shareholding.

NACIL as a National Carrier had the option of either undertaking the ground handling services at all metro airports under its subsidiary company or through a Joint Venture partnership company in terms new ground handling policy. It selected SATS as its JV partner for providing comprehensive ground handling services at Indian Airports. This agreement is for all airports other than Bangalore, Hyderabad and Cochin. In the proposed JVC, both AI and SATS shall subscribe 50% of the shares each. The terms and conditions will be firmed-up after negotiations with SATS and accordingly the Memorandum Of Understanding for a particular station would be signed by the partners.

As I had indicated in my article "An air battle ..... on the ground", Government owned Air India, holds majority market share of the ground handling business at Indian Airports, since the existing agreements were signed when the airports were operated by Airport Authority of India, a government department, creating a monopoly situation.

Almost all these contracts were to cease by December 31, 2008, with the introduction of the new policy on ground handling but will now cease by January 1, 2010, due to the protests of airline companies, airline employees, and employee unions of existing ground handling companies.

SATS is considered one of the première ground and terminal handling companies in the world, and Air India would like to meet the increasingly competitive, price sensitive and demanding needs of its customers in a free market scenario. It is looking to SATS to provide the modern equipment, processes, technology and resource management tools needed to upgrade its capabilities.