Tatas to fly with Singapore Airlines in India.
By Rajiv Theodore
NEW DELHI: Indian aviation has found fresh head winds to soar the blue yonder. Two global brands and a marquee investor have come together to lift India’s aviation sector once again.
With a rich legacy in the airlines business, India’s oldest and beloved corporate house, the Tatas had announced that it would launch a new full service airline in India in a joint venture with Singapore Airlines that would first take up domestic routes and then chart the global skies.
This is the second time this year that the group, consolidated by aviator–magnate and patriarch JRD Tata, had announced another foreign partnership. This new joint venture comes on the heels of Tata’s partnership with Malaysian low cost carrier AirAsia which is planning to take-off by this year end.
A joint statement between the two JV partners stated: “Tata Sons and Singapore Airlines have signed a memorandum of understanding (MoU) and applied for Foreign Investment Promotion Board (FIPB) approval to establish a new airline in India that will help further stimulate demand for air travel…The airline will be based in New Delhi and will operate under the full-service model. Tata Sons will own 51% and Singapore Airlines will own 49%”.
This is the second time in just over a decade that Tatas and Singapore Airlines have got together for an aviation business venture in India. In 2001, they had jointly bid to acquire a 40% stake in Air India, when the then government had tried to part-privatize the loss-making national carrier. However, the privatization plan for Air India did not take off due to opposition from political parties and other important players in Indian aviation and the two then parted ways.
Prasad Menon, who is the Chairman of the JV, says that the board initially would have three members – two nominated by Tata Sons and one nominated by Singapore Airlines.
Singapore Airlines CEO Goh Choon Phong said in a statement: “We are confident the joint venture airline will help to stimulate market demand and provide economic benefits to India.”
The plan for the new airline was already in the pipeline for a year when the government cleared 49% FDI in telecom in September 2012. This deal saw the transition of power from Ratan Tata to Cyrus Mistry who took over in December 2012. And the deal was nearly a back to back one in the sense that days after, the Foreign Investment Promotion Board (FIPB) cleared the AirAsia venture on March 06. In fact, Tatas had taken Malaysia’s AirAsia BhD, the larger partner in the AirAsia India venture, fully into confidence about the Tata-SIA deal.
A team headed by Tata group’s brand custodian Mukund Rajan and the chairman-designate of the new venture Prasad Menon started the negotiations with SIA and agreed on a transaction a few days ago while a larger team of senior personnel worked on the different facets of the JV to finalize the terms.
Both sides, the Tatas and SIA had been working together on different businesses. Indian Hotels has an air catering joint venture with SATS (formerly Singapore Airport Terminal Services). And many among today’s SIA leadership were part of the team that negotiated with the Tatas in the mid-1990s.
Also, there would be no conflict of interest for The Tatas as the AirAsia venture is low-cost and the SIA one is full-service. The Tatas have already clarified that the AirAsia venture is a financial investment.
But in India the distinction between full service and low cost airlines is blurred with almost all airlines offering matching fares. Airlines, including Jet Airways, which began as a full service carrier, ventured into the low cost market (Konnect and JetLite) to respond to changed market conditions. Now, over 50 percent of capacity is in low cost space. Even Kingfisher experimented with both the models before shutting down operations last year.
AirAsia and Singapore Airlines group, which have two cost carriers in its fold – Scoot and Tiger Air, are locked in an intense competition in Australia, China and South East Asia markets. With both the airlines keen to start international services from India, competition between them will get intense.