Air India and SIA
SIA is majority owned (about 53%) by Temasek which is Singapore’s sovereign wealth fund. It’s valid to ask 1) if any new money is being invested by Temasek 2) How would Air India’s performance affect Temasek’s portfolio returns.
If the authorities don’t handle this issue properly , it’s going to turn into another Income Insurance where people get emotional about a complex investment , and then turn it political. Already , people are taking about LKY and what he said (under a vastly different context). We just need an ex CEO of SIA , or a retired grandee to talk about the time when policemen wore shorts , and then we have another Income insurance.
To begin with, SIA never invested in Air India. SIA had a JV partnership with Tata to create Vistara Airlines in 2013. It started flying in 2015. It was a success. It’s very rare to build a modern airline from scratch , but over a decade Vistara became a respected premium airline. It was still slightly loss making in 2024 , but by then SIA had 49% of a very substantial airline that was respected and on the cusp of being profitable.
In 2022, Tata bought Air India and in 2024, in order not to have two airlines that duplicated routes, Tata merged Vistara and Air India.
THAT’S HOW SIA CAME TO OWN 25% of AIR INDIA
They DID NOT invest in Air India.
If SIA does not answer the capital call, their stake in Air India will be diluted.
So should they ?
It depends.
I would defend this capital call only if SIA can demonstrate internally that three things remain true: there is a credible trajectory toward operating breakeven; there is an identifiable ceiling on additional shareholder funding; and the probability-weighted IRR from additional money invested today exceeds SIA’s cost of capital.
What’s important is that whether one should invest more isn’t dependant on whether Air India is losing money now, especially this year because of the Middle East war.
It depends on whether Tata can turn things around.
I built a financial model below that showed me that depending on the assumptions , it’s possible that Air India could become a great investment, especially since the market now is a duopoly – Air India and Indigo.
At the end of the day, financial models only tell you that much.
When I make an investment , I look at the team. When I make a minority investment , I look at my JV partner.
Do trust my partner ? Do I have a good relationship with my partner ? Do I think my partner can make the company into a great and profitable company ?
In this case , SIA’s partner is Tata.
They have had a good experience with Tata in building Vistara.
I can see why SIA (and Temasek) thinks Tata can do it again with SIA’s help.
This is how we should look at the issue.
Not just on today’s profits.
Air India scenario model
FY26 revenue of S$10.53bn is the starting point. FY2031 bear net margin is now 1.5% so that the 2031 valuation is internally consistent with an 8× earnings multiple.
| Assumption | Bear | Base | Bull |
|---|---|---|---|
| Revenue CAGR to 2031 | 3% | 7% | 10% |
| FY2031 revenue | S$12.2bn | S$14.8bn | S$17.0bn |
| FY2031 normalized net margin | 1.5% | 5% | 8% |
| FY2036 normalized net margin | 2% | 6% | 9% |
| Further Air India equity required* | S$6.9bn | S$3.9bn | S$2.4bn |
| SIA’s 25.1% share | S$1.74bn | S$0.98bn | S$0.61bn |
*From now onward, including the current US$1.5bn request.
Reuters reports that Air India is currently seeking about US$1.5bn of fresh shareholder equity. At the latest exchange rate that is roughly S$1.91bn, so SIA’s 25.1% pro-rata contribution would be approximately S$480m.
For valuation, normalized earnings are used rather than today’s abnormal losses: roughly 8× earnings in the bear case, 12× in the base case and 15× in the bull case. The implied revenue multiples remain plausible as a cross-check. Revenue from 2031 to 2036 is assumed to compound at the same case CAGR.
What Air India could be worth
| 2031 | 2036 | |
|---|---|---|
| Bear — Air India equity | S$1.5bn | S$2.3bn |
| SIA’s 25.1% | S$0.37bn | S$0.57bn |
| Base — Air India equity | S$8.9bn | S$14.9bn |
| SIA’s 25.1% | S$2.22bn | S$3.74bn |
| Bull — Air India equity | S$20.4bn | S$36.9bn |
| SIA’s 25.1% | S$5.11bn | S$9.26bn |
Bear 2031 arithmetic: S$12.2bn × 1.5% = S$0.183bn of earnings × 8 = S$1.46bn (S$1.5bn).
The bull case is not absurd mathematically. At S$17bn revenue and an 8% net margin, Air India would make about S$1.36bn a year. A 15× multiple produces roughly S$20bn of equity value.
SIA’s prospective IRR
SIA’s existing stake is not treated as free just because the original purchase price is sunk. From today’s perspective it has an economic opportunity cost.
The S$1.135bn carrying value today is the starting value at risk. Future capital calls are added, and the value of SIA’s 25.1% stake is measured at the end. Capital is treated as invested up front (conservative for IRR).
| Forward annualised IRR | To 2031 | To 2036 |
|---|---|---|
| Bear | –34% | –16% |
| Base | 1% | 6% |
| Bull | 24% | 18% |
Analysis
The bear case is still disastrous. SIA keeps funding Air India and ultimately owns a stake worth far less than today’s carrying amount plus the extra cash injected. At a 1.5% 2031 margin the airline is barely profitable; the 8× multiple still only produces about S$1.5bn of equity value against S$6.9bn of further group equity and S$1.74bn from SIA.
The base case is not very attractive financially, but it is tolerable. Air India eventually becomes a respectable S$15–21bn revenue airline and makes decent profits, but because SIA has had to wait years and inject more capital, its prospective return is only about 1% p.a. to 2031 or 6% p.a. to 2036.
The bull case is excellent: approximately 18–24% annualized returns.
The 10% hurdle-rate test
Suppose SIA demands roughly a 10% annual return on this very risky investment.
Under the base-case future funding schedule, Air India’s entire equity would need to be worth approximately:
S$13.2bn by 2031, or
S$21.2bn by 2036
for SIA just to achieve a 10% prospective return from today.
Compare that with the base-case valuation:
2031: S$8.9bn
2036: S$14.9bn
The base case still misses a 10% hurdle. The 1.5% bear-margin revision does not change that test.
What would justify the losses today?
Focus SIA’s investment committee on four variables.
Terminal margin rather than revenue. Air India already has scale. The investment thesis ultimately depends upon achieving perhaps 7–10% sustainable net margins, not merely expanding turnover. The bear case now makes that explicit: even a move from heavy losses to a 1.5% net margin in 2031 does not salvage the equity value.
Total capital still required. This may be even more important than losses. A S$3bn accounting loss doesn’t necessarily require S$3bn of equity. But repeated S$1–2bn capital calls can destroy returns. SIA needs a credible estimate of total remaining funding to breakeven.
Time to breakeven. Every extra three years dramatically reduces IRR. A S$20bn Air India in 2031 can be an excellent investment; the same S$20bn valuation in 2036 is much less impressive.
Strategic benefits to SIA itself. This should be calculated separately: connecting Indian traffic through Singapore, SIA/Air India joint-business economics, KrisFlyer benefits, corporate traffic, route rationalisation and defence against Gulf carriers. SIA and Air India already signed a commercial cooperation framework in January 2026, so some of this strategic thesis is increasingly tangible.
Preliminary conclusion
The numbers explain why both supporters and critics of the Air India investment can make credible arguments.
If you believe Air India ultimately becomes merely an average profitable airline — low-single-digit net margins and further multi-billion-dollar equity — the returns to SIA are mediocre to poor given the capital and time required. The revised bear case is worse than a rounding error: SIA’s stake is worth about S$0.37bn in 2031 versus S$1.135bn of carrying value plus S$1.74bn of further cash.
If you believe Tata and SIA can turn it into the dominant Indian global network carrier, with 8–10%+ normalized margins and limited additional capital calls, the upside to SIA is very large: its stake could conceivably become worth S$5–9bn.
Therefore, do not judge the present S$945m annual accounting loss primarily as “money lost.” The far more important metric to watch each quarter is:
cumulative additional cash injected / expected normalized earnings capacity.
If the losses shrink quickly without repeated equity injections, the investment thesis improves dramatically. If losses shrink but another S$1–2bn is required every year, it deteriorates even if the airline is visibly improving.
This all depends on a subjective judgement call on Tata’s management ability.
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