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09-20-2013, 06:23 AM #1
Tata, Singapore Airlines JV to stimulate demand for air travel
Tata Sons will establish a full service airline in India along with international carrier Singapore Airlines. The move comes barely five months after the Tata group got the nod from regulatory authorities to start a low cost airline in the country with Malaysian carrier AirAsia as a foreign partner.
"Tata Sons and Singapore Airlines have signed a Memorandum of Understanding 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," said a joint statement by Tata Sons and Singapore Airlines.
Tata Sons will own 51 per cent and Singapore Airlines 49 per cent in the venture. The board will initially comprise of three members -- two nominated by Tata Sons and one nominated by Singapore Airlines. Prasad Menon, a Tata Sons nominee, will be the chairman of the airline. The statement further said that the airline will be based in New Delhi and will operate under the full-service model subject to FIPB and other regulatory approvals. "It is Tata Sons evaluation that civil aviation in India offers sustainable growth potential. We now have the opportunity to launch a world-class full-service airline in India. We are delighted that we are partnering in this endeavour with Singapore Airlines," Menon said in the statement.
Singapore Airlines has always been keen to enter the Indian aviation market. "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 and contribute to the future expansion of the market," Goh Choon Phong, CEO, Singapore Airlines said in the statement. "Tata Sons is one of the most established and respected names in India. With the recent liberalisation, the time is right to jointly bring consumers a fresh new option for full-service air travel. We are confident the joint venture airline will help to stimulate market demand and provide economic benefits to India," he added.
Tata Airlines, launched by JRD Tata, was taken over by the Indian government in 1953 and was later rebranded Air India. The Tata Group made an attempt in 1995 with Singapore Airlines to re - enter the aviation market. Both the airlines got the FIPB approval to start the venture but there was an abrupt change in the aviation policy and foreign airlines were debarred from picking up a stake in domestic airlines. The rules were amended again in September last year and foreign carriers were allowed to pick up to 49 per cent stake in Indian carriers. Abu Dhabi based Etihad Airways has already announced its plans to pick up a 24 per cent stake in Jet Airways. Singapore Airlines had also attempted to pick up a stake in Air India with the Tata Group in 2000 when the divestment of the loss making airline was being considered.
"This will open up competition in the westbound routes from India. Nearly 70 per cent of global traffic from India is westbound - to Middle East, EU and Americas. With this JV, Singapore Airlines gets a play in the growing international travel from India. It can also operate direct flights to Far East and Australia from India or route them through Singapore", said Amber Dubey, Partner and Head - Aerospace and Defence at global consultancy KPMG. He further added that this move will help Delhi's Indira Gandhi International Airport emerge as a global hub as the proposed airline will be based in the Indian capital.
However, this deal may create some problems for the Tata-Air Asia joint venture (JV) but clarity will emerge over the next few weeks, according to Dubey. "Questions are being asked about Tata entering into two separate JVs," said Dubey.
"The question is about the larger issue of a country's policy and is a single airline company allowed to have a stake in ten airlines. This is something that needs to be looked into by the Competition Commission of India. I do not think it is something that is desirable," said G.R. Gopinath, the pioneer of low cost aviation in the country.