13 years ago, Tatas failed to buy stake in Air India.
Bureau Report
CHENNAI: Thirteen years after it failed to buy a stake in Air India, in partnership with Singapore Airlines, the Tata Group is again venturing into the aviation business, this time in partnership with AirAsia, Asia’s largest low-fare carrier, and a local investor.
Malaysia-based AirAsia will hold a 49% stake in the proposed joint venture (JV), in which Tata Sons Ltd. will have 30%, and Arun Bhatia of Telestra Tradeplace Pvt. Ltd, which is associated with AirAsia founder Tony Fernandes at the Queens Park Rangers football club, will hold the rest, reported Live Mint.
The airline will be managed by AirAsia, and Tata Sons, the group holding company, will not have any operating role in the proposed venture, a Tata spokesperson said in an email, said the report.
AirAsia said in a release that its investment arm AirAsia Investment Ltd has submitted an application to the Foreign Investment Promotion Board (FIPB) seeking approval to invest 49% in the venture.
“Subject to FIPB approval, the proposed joint venture company will make an application to Indian aviation regulators for the air operators permit,” the company said. “The parties have signed a memorandum of agreement that details high-level terms with regards to the proposed partnership.”
The new venture comes at a time when India’s airline industry is laden with heavy debt and years of accumulated losses, laid low by rising costs and intense competition. The AirAsia application is the first seeking approval to form a new airline after the liberalization of India’s overseas investment rules in aviation. The proposal comes as the United Arab Emirates carrier Etihad Airways PJSC is said to be close to buying a 24% stake in Jet Airways (India) Ltd.
In September, the government allowed overseas airlines to pick up a stake of as much as 49% in domestic carriers, said Live Mint. The Tata group, where Cyrus Mistry took over as chairman in late December after the retirement of Ratan Tata, will be trying to enter the aviation market after abandoning a 2000 attempt in a venture with Singapore Airlines to buy a 40% stake in Air India—an airline which the group founded as Tata Airlines in the 1930s before it was nationalized in 1953.
Political resistance and corporate rivalries were blamed for the Tata group abandoning the project. In November 2012, before his retirement as group chairman the following month, Ratan Tata claimed that he had been advised by an industrialist to pay a bribe to a minister. He mentioned no names, and said an individual had been responsible for blocking the group’s attempt to enter aviation.
The Tata group owns nearly 6% stake in SpiceJet Ltd, India’s second largest low-fare carrier. However, the group has said that it is just a financial investor in that airline. The new project also won’t see the Tatas play an operational role.
“When AirAsia approached Tata Sons with the proposal for a stake in the venture, Tata Sons concluded that given its reputed business model, AirAsia could be a relevant and successful service provider in the domestic sector,” said the Tata group spokesperson, said Live Mint. “That is the reason for Tata Sons’ investment in the AirAsia venture. The benefits to the domestic market will include: a) AirAsia’s reputed service, which will further grow aviation as a mode of transport in what is a relatively underserved market and b) employment generation.”
AirAsia is Asia’s largest low-fare carrier with 118 planes and more than 350 on order. It operates 45 flights weekly from India to Kuala Lumpur.