Tatas, Singapore Airlines to launch new airline in India

Tata group on Thursday joined hands again with Singapore Airlines (SIA) to start a new full service airline in India with an upfront investment of $100 million, eighteen years after their first failed attempt.

Tata Sons, the holding company of most of the operating firms of the over $100-billion salt-to-software conglomerate Tata group, has signed an MoU with SIA under which it will own 51 per cent stake in the proposed carrier. The rest will be with Singapore Airlines.

The partners will make an initial investment of $100 million to launch the airline, which may take off next year after necessary clearances, sources said.

The group, which had in February announced a partnership with Malaysia's Air Asia for a low-cost carrier in India, said it has applied for approval from the Foreign Investment Promotion Board (FIPB) to establish the new airline which will be based here in the Capital.

The initial Board of the new carrier will have three members, two nominated by Tata Sons and one nominated by Singapore Airlines. The Chairman will be Prasad Menon, nominated by Tata Sons.

This is the third attempt by the two partners to enter the Indian civil aviation sector.

In 1995, they had applied to FIPB for a full service airline, which was cleared a year later but the venture never took off due to a change in the civil aviation policy in 1997 that barred foreign carriers from holding stake in domestic airlines.

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The deal did not come through and years later former Chairman Ratan Tata had famously remarked that that the deal failed because the group refused to bribe a Union minister.

The government last year changed policy to allow up to 49 per cent foreign investment in domestic airlines.

Speaking to 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)."

Mukund Rajan, Member of General Executive Council, Tata Sons, said: "Tata Sons will fully participate in the management and operations of the airline... it will leverage its understanding of the Indian industrial landscape and contribute with its long years of experience towards the creation of fruitful partnership."

From the Singapore Airlines, the board member will be Mak Swee Wah, Executive Vice-President (Commercial).

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In 2000, Tatas and Singapore Airlines had jointly bid for the 40 per cent divestment of Air India but withdrew from it in December 2001. The disinvestment of Air India did not take place due to political opposition.

Commenting on the latest development, Menon said: "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."

Expressing similar views, Singapore Airlines CEO, Goh Choon Phong said: "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."

Amber Dubey, Partner and Head - Aerospace and Defense- at global consultancy KPMG said the development affirms India's reputation as a lucrative aviation market in the long run, despite the short-term man-made problems like excessive taxation.

"This will open up competition in the westbound routes from India," 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.

The Tatas have a long history of association with civil aviation in India. In 1932 JRD Tata had started Tata Airlines, which was later in 1946 renamed as Air India, which was nationalised 1953.