Air India is seeking a partnership with Lufthansa Technik of Germany, a leading provider of aircraft maintenance and Air France-KLM’s engineering unit, to bid for AI Engineering Services Limited (AIESL).
Singapore Airlines, which owns 25.1% of Air India, will also participate in the consortium through its engineering arm, SIA Engineering Company Limited.
The MRO (maintenance, repair, and operations) company that primarily serves Air India’s fleet is AIESL, the former engineering arm of Air India that the government now owns. Its ownership is critical for Air India to ensure the smooth operation of its aircraft fleet.
Lufthansa Technik, in a talk with Air India
Lufthansa CEO Carsten Spohr met with top executives from Air India and Tata Sons several times in order to finalize the consortium and strengthen commercial ties with Air India.
According to a Lufthansa Technik spokesperson, the company is closely examining the privatization of AIESL in order to strengthen its presence in India.
“India is a highly dynamic growth market, and the extreme growth of air traffic will drive up demand for MRO services. We are already present and successful on the Indian subcontinent with our own facility for component services, and we are keeping a close eye on this development in order to participate even more strongly in this growing market,” she said.
Air France-KLM’s engineering
AIESL is one of the four former AI subsidiaries that will be privatized and are currently owned by the government.
According to government representatives, the Preliminary Information Memorandum (PIM) of the Air India Specific Alternative Mechanism (AISAM) is awaiting approval. Furthermore, from a group of senior ministers led by home minister Amit Shah.
After receiving approval, the government will release an EOI document to request bids from interested parties.
AIESL Privatization
Last year, the Tata Group purchased Air India from the government. According to the terms of that agreement, the government retained ownership of Air India’s engineering and ground-handling units. Subsequently, forcing the Tata group to develop in-house engineering capabilities for the airline while also outsourcing work to AIESL.
According to Campbell Wilson, the exclusion of AIESL from Air India has created a difficult road ahead for maintaining and servicing the airline’s fleet.
“The loss of Air India’s engineering capabilities was one of the unfavorable surprises of privatization. AIESL will continue to offer services through the end of 2019. But given our expansion, what happens next deserves careful thought,” Wilson had said.
A three-year lock-in period exists as part of the share purchase agreement between Tata Sons and the government. Air India must continue doing business with the ground handling and engineering unit.
“AIESL currently handles 90% of our engineering work. Therefore, acquiring AIESL makes sense to expand the airline’s internal engineering capabilities,” an airline executive explained, adding that the company hasn’t decided on the consortium’s partners and organizational structure.
AIESL is India’s largest MRO provider, with an experienced workforce and six hangar facilities spread across the country. Furthermore, it handled 450 aircraft in FY2022 and earned Rs 840 crore.
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