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AirAsia to invest $50 m in JV with Tatas

Special Correspondent
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Tony Fernandes
Tony Fernandes

Stating that AirAsia and Tata group joint venture (JV), along with an Indian investor, could take wings by the end of this year with 3 to 4 planes, AirAsia CEO, Tony Fernandes, on Thursday, said the no-frills Malaysian airline would make an initial investment of about $50 million.

AirAsia had, on Wednesday, announced that it had filed an application with the Foreign Investment Promotion Board (FIPB) for forging a joint venture (JV) with Tata Sons and Arun Bhatia of Telestra Tradeplace for acquiring 49 per cent stake in the proposed airline company.

In a conference call, Mr. Fernandes announced that the proposed airlines would launch preliminary operations with three to four Airbus A-320 aircraft, and an investment of around $30-50 million. “We will scale up the size of the fleet quickly thereafter,” he said. Of the 51 per cent stake, Tata Sons is likely to pick up 30 per cent equity and one of Bhatia’s companies, Hindustan Aerosystems, the remaining 21 per cent. The airline would be headquartered in Chennai and would focus on South Indian routes where AirAsia already operates.

Asked when the airline would resume operations, Mr. Fernandes said all would depend on the Indian aviation regulator but added that most likely it would take wings by the fourth quarter.

He also said a new CEO would be named soon for the joint venture and the senior management soon thereafter. “Initially, we will have staff strength of about 300 people. But as we grow, we will add numbers. As a thumb rule, generally 20 people are employed with every new aircraft added to the fleet.

Mr. Fernandes said that the reason why Chennai was chosen as the base for the new joint venture was that AirAsia already operated there and knew the place very well. AirAsia, through its operations based in Thailand and Malaysia, flies to Chennai, Bangalore, Kochi, Tiruchirappalli and Kolkata from several destinations in the ASEAN region.

Replying to a question on the fare war, Mr. Fernandes said: “I think we can give a fair competition. Irrational competition has gone out of the Indian market. Now there are sensible businessmen running the aviation business sensibly.” However, he hinted that purchase price of tickets would be the number one differentiator from other airlines.

The strong brand image and network would also make a difference, he added.

On the high airport charges in India, he said that his company would work hard to try and convince the airport operators and the State governments to reduce the charges.

He said India was a large enough market for all. “Businesses put themselves out of business, not the competition. If an airline is rightly capitalised, follows the right business model and the right people are running it, there should be no problem. It is a question of finding the right structure and partners, and we have chosen excellent partners. We strongly believe that the current environment is perfect to introduce AirAsia’s low fares which stimulate travel and grow the market,” he added.


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