Third time lucky?

The Tatas and Singapore Airlines (SIA) are taking to the skies with a new joint venture after two aborted take-offs 18 and 13 years ago. The proposed company, in which the Tatas will hold a majority 51% and SIA the rest, has sought approval to establish a full service airline headquartered in New Delhi. It has filed an application with the Foreign Investment Promotion Board for an initial investment of $100 million.
Tatas’ entry into the upper segment of the aviation market comes seven months after it signed a JV with Malaysia-based budget carrier AirAsia, in which it holds 30%. The entity is awaiting a licence from the country’s civil aviation ministry to launch operations. Tatas, which controlled India’s national carrier Air India before it was nationalized 60 years ago, also holds a small stake in Spicejet, the country’s only listed discount airline. In addition, it operates an air catering business in partnership with SIA.
The Tata-SIA airline is expected to rev up competition in Indian aviation, which has seen domestic fares soar by as much as 50% in recent weeks. This will be the third foreign direct investment after Tata-AirAsia and Jet-Etihad since the government last year allowed foreign carriers to own up to 49% stake in domestic carriers.
India’s aviation market —domestic and international—is about 150 million passengers large; by 2020, it is
expected to grow to 450 million, the third-largest in the world after China and the US. But while these numbers look juicy, the fact is that this is an industry that both globally and in India has witnessed the financial crash-and-burn of many a high flying airline.
There is speculation as to whether Tata-SIA will be happy flying just domestic for five years before it’s eligible to go international. There is pressure on the government to relax its present rules that an airline needs a fiveyear domestic track record and a minimum fleet of 20 before it can venture overseas.
SIA along with its subsidiary Silk Air already operates about 100 flights a week into 11 Indian cities and the alliance with Tata will help Southeast Asia’s biggest carrier expand its presence in Asia’s third-largest economy.
“It is Tata Sons’ evaluation that civil aviation in India offers sustainable growth potential,” said Tata Group veteran Prasad Menon, who has been named chairman of the JV. He met civil aviation minister Ajit Singh in the capital on Thursday to brief him about the new venture, said a source familiar with the developments.
Tata Sons officials ruled out any conflict of interest with AirAsia India, which they said “was in the loop about the new venture with SIA”.
The details of the proposed airline, including its brand and management team, will be announced in due course, Tata Sons, the holding company of Tata Group, and SIA said in a joint statement.
The JV signals the $100 billion Tata Group’s growing interest in the aviation business, which it pioneered in the country. In 1932, JRD Tata established Tata Airlines, which was taken over by the government in 1953 and rebranded as Air India. Former Tata chairman Ratan Tata, who retired last year, was keen on piloting the group’s re-entry into the sector, and led the first talks with SIA in the 1990s.
He has in the past expressed anguish that the proposed JV was stymied by vested interests which lobbied against it. The two companies later bid for a stake in Air India but that too was thwarted because of political opposition.
Now with the change in aviation rules, SIA approached the Tatas again for a business venture. “We have always been a strong believer in the growth potential of India’s aviation sector. With the recent liberalization, the time is right to jointly bring consumers a fresh new option for fullservice air travel,” said SIA CEO Goh Choon Phong.
The new venture will initially have three board members—Menon, Mukund Rajan, also a Tata veteran, and Singapore Airlines executive vice president Mak Swee Wah.