Tata Sons, Singapore Airlines to launch new airline

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SME Times News Bureau | 20 Sep, 2013
After waiting in the wings for nearly two decades, Tata Sons and Singapore Airlines Thursday revived their joint venture to set up a full-service airline in India, investing USD 100 million.

The two companies, in a joint statement here Thursday, said they had signed a memorandum of understanding to launch a new full-service private carrier based in New Delhi.

They have also applied for Foreign Investment Promotion Board (FIPB) approval for the new airline, of which Tata Sons will own 51 percent stakes and Singapore Airlines 49 percent.

The development surprised many. Civil Aviation Minister Ajit Singh said that he came to know about the venture "only this morning".

"I was just informed this morning through a courtesy call" by the Tatas, Singh told agency.

"They (Tata Sons and SIA) will apply to the FIPB (Foreign investment Promotion Board). Apart from this, I cannot comment any further. The application will have to take its due procedural course," the minister said.

Later in the day, Ajit Singh met the proposed airlines' chairman nominee Prasad Menon and Tata Sons director Mukund Rajan at his residence.

Interestingly, in February Ajit Singh suggested that Tata Group should start its own airline. He was then commenting on the tie-up between Tata Sons and Malaysian low-cost carrier (LCC) AirAsia and Arun Bhatia's Telstra Tradeplace to start a budget airline in India.

Initially, the board of directors of the proposed airline will have three members, including two nominated by Tata Sons and one nominated by Singapore Airlines.

Details of the airline's branding, management team, products and services will be announced in due course.

Menon said that the company had evaluated that the sector offered sustainable growth potential.

Singapore Airlines Chief Executive Goh Choon Phong said his company was excited about the new venture that promises growth potential.

Sectoral experts also welcomed the development.

"It is indeed encouraging to see foreign airlines expressing an interest to meet the rising passenger growth in the country," Rajiv Chib, PricewaterhouseCoopers associate director, told IANS.

On the question of ownership norms violation, as the Tata Group and AirAsia have also applied for an airline, sectoral experts said there is no such precedent or rule that might hamper the deal.

Currently, Tata and AirAsia's application is under the government consideration and is facing some legal challenges.

This is the third time the two business groups are trying to start an airline in India. In mid-1990s, Tatas and Singapore Airlines tried to launch a joint airline.

Then again 2000-2001, both the parties made another bid to take a stake in the erstwhile Indian Airlines. However, that deal never came through due to stringent foreign investment norms that existed at that time.

However, last year the government allowed foreign airlines to invest up to 49 percent in Indian domestic airlines.

Informatively, India's first passenger carrier was Tata Airlines, which took flight in 1932. In 1953, it was nationalised and renamed Air India.

Currently, there are six scheduled domestic airlines in the country -- Air India, Jet Airways, JetLite, SpiceJet, IndiGo and GoAir. The operating licence of Kingfisher Airlines was suspended last year.

Some salient features:

-- Tatas and Singapore Airlines to start new full service carrier
-- The new airline to be based in New Delhi
--Tata's to hold 51 percent, while Singapore Airlines to have a 49 percent stake
--Both the parties to invest $100 million in to the proposed airline
-- The proposal will be sent to the Foreign Investment Promotion Board (FIPB)
-- This will be the second proposed airline venture that the Tata Sons have entered into this year
-- Tata Sons has also applied with AirAsia to start a budget airline.