With Singapore Airlines, Tatas set to fill Kingfisher space

In a second coming, the Tatas have announced plans to set up a domestic airline in partnership with Singapore Airlines. The duo had proposed an airline over a decade ago, but it failed to take off due to bureaucratic meddling. The government earlier this year liberalised foreign investment in the airline industry.

Tata Sons, holding company of the over-$100 billion Tata Group, has signed a memorandum of understanding with Singapore Airlines for the joint venture. It has moved the Foreign Investment Promotion Board, seeking approval to establish a new airline.

This is separate from the proposed AirAsia India airline in which the Tatas have 30 per cent equity stake. The new airline will compete with Jet Airways and Air India in the domestic sector and will be based out of New Delhi. Tata Sons will hold 51 per cent equity, while the balance will be owned by Singapore Airlines. There will be an initial investment of $100 million.

The board will, initially, have two nominees from Tata Sons.

The Civil Aviation Ministry, on Thursday, said that it was up to the Securities and Exchange Board of India and the Corporate Affairs Ministry to clear the Tata Group’s new joint venture with Singapore Airlines.

Addressing reporters, Civil Aviation Minister Ajit Singh said: “Aviation rules do not bar Tatas from having two ventures. It is for SEBI and Ministry of Corporate Affairs to clear such ventures (in case of conflict of interest).”

In the mid-90s, the Tatas had partnered with Singapore Airlines to start a domestic airline but the Indian government rejected Tata’s proposal. There was also a move by the Tatas to participate in the proposed disinvestment of Air India and Indian Airlines, but various factors never allowed them to succeed and re-enter civil aviation.

“We would like to ensure that we are able to realise the original vision of launching a full-service, world-class airline that India can be proud of; the Tata group’s own contribution to the aviation industry in this country is also well known, and we hope to carry forward the legacy of having launched in past decades one of the world’s most admired airlines (Air India),” said a Tata Sons spokesperson.

Unlike the Group’s association with AirAsia India, Tata Sons will play an active role in the operations of this new airline, and will fully participate in the management and operations.

“We have always been a strong believer in the growth potential of India’s aviation sector, and are excited about the opportunity to partner Tata Sons in contributing to the future expansion of the market,” Goh Choon Phong, CEO, Singapore Airlines, said.

“With recent liberalization, the time is right to jointly bring consumers a fresh new option for full service air travel. We are confident that the joint venture airline will help stimulate market demand and provide economic benefit to India,” Mr Phong added.

While the low cost airline segment is growing fast in India, the exit of Kingfisher Airlines has created a void in the full service space. Even Jet Airways is now in the process of wholly concentrating on full service.

Analysts, however, have had mixed reactions to the announcement.

Amber Dubey, Partner and Head — Aerospace and Defence— at global consultancy KPMG, said the development affirmed India’s reputation as a lucrative aviation market in the long run, despite the short-term man-made problems such as excessive taxation.

“This will open up competition in the west-bound routes from India,” Mr. Dubey said, but added “this deal may create some problems in the Tata-AirAsia JV...Questions are being asked about the Tatas entering into two separate JVs.”

Unlike in its tripartite partnership with AirAsia and Arun Bhatia’s Telestra Tradeplace Pvt Ltd. for Air Asia India, in which Tata Sons holds 30 per cent stake but no operating role, in the new proposed full service carrier it will be in driver’s seat.

—With inputs from PTI

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