Tatas to co-pilot AirAsia in low-cost Indian JV

Tags: Companies

Make comeback bid for airline business again

After several aborted attempts to take off in the aviation sector under the stewardship of Ratan Tata, the new chairman of $100 billion Tata group Cyrus Mistry is set to co-pilot the group back into the business, which it famously launched in India under JRD Tata way back in 1932.

Malaysia-headquartered AirAsia has proposed a joint venture airline business in India in partnership with Tata Sons and another local partner Arun Bhatia of Telestra Tradeplace.

Hours after a formal announcement by AirAsia, a Tata group spokesperson said in a written statement, “Tata Sons will be an investor in the proposed venture, with a minority stake of 30 per cent. The airline will be managed by AirAsia, and Tata Sons will not have any operating role in the proposed venture. When AirAsia approached Tata Sons with the proposal for a stake in the venture, Tata Sons concluded that given its reputed business model, AirAsia could be a relevant and successful service provider in the domestic sector. That is the reason for Tata Sons’ investment in the AirAsia venture. The benefits to the domestic market will include: a) AirAsia’s reputed service, which will further grow aviation as a mode of transport in what is a relatively underserved market; and b) employment generation.”

Not much is known about Bhatia or Telestra Tradeplace, though certain news portals placed him as the father of steel tycoon Lakshmi Mittal’s son-in-law Amit Bhatia. Bhatia Jr, along with AirAsia's chief Tony Fernandes, is co-owner of British soccer team Queens Park Rangers, the online media reported.

Ratan Tata is known to have tried on at least three occasion to re-enter civil aviation and applied for a licence in 1995, 1997 and 2001, in partnership with Singapore Airlines.

“We have carefully evaluated developments in India over the last few years and strongly believe that the current environment is perfect to introduce AirAsia’s low fares which stimulate travel and grow the market,” Fernandes, AirAsia founder and Group CEO, said in a statement.

AirAsia, through its investment arm, AirAsia Investment (AAIL) has submitted an application to the foreign investment promotion board to seek approval for investing 49 per cent in the proposed Indian venture. This move follows easing of rules by the government to allow foreign carriers to invest up to 49 per cent in Indian carriers.

AirAsia plans to operate its proposed joint venture from Chennai, focusing on Tier II/Tier III Indian cities. The airline already connects Chennai, Bangalore, Tiruchirappalli, Kochi and Kolkata to the Asean market from its hubs in Thailand and Malaysia.

AirAsia is Asia’s leading low-cost carrier and is looking to replicate its joint venture success stories in other Asean markets in India as well. The development signals Tata group's re-entry into the civil aviation sector after six decades, and following the aborted attempts by former chairman Ratan Tata through the 1990s in partnership with Singapore Airlines.

Earlier on November 15, 2010, while still the group chairman, Tata had said during the course of a lecture in Dehradun on "India in the 21st century: opportunities and challenges", that he had thrice tried to get into civil aviation, but his attempts were thwarted by a minister demanding Rs 15 crore in bribes, which he had refused. "We approached three prime ministers also, but an individual thwarted our efforts to form the airline," he had said then, adding, "I did not want to go to bed knowing that I set up an airline by paying Rs 15 crore."

Ratan Tata's predecessor, JRD Tata, had set up India’s first commercial airline, Tata Airlines in 1932, which was later renamed in 1946 as Air India, and subsequently nationalised.

The latest news on the Tatas, comes after last year’s reports on Air Asia’s possible attempt to bid for a stake in SpiceJet, India’s budget airline, and its subsequent denial.

AirAsia expressed confidence over replicating its success across Malaysia, Thailand, Indonesia and other joint ventures. In particular, AirAsia believes its success in maintaining focused and disciplined cost structure will tremendously benefit the Indian consumer, the statement said. The proposed joint venture is expected to be 100 per cent low cost operation. In its associate companies in Indonesia, Thailand and Japan, AirAsia has 48.9 per cent, 48.9 per cent and 49 per cent stakes, respectively.

In a recent interaction with Financial Chronicle (at Toulouse, France) Kiran Rao, executive vice president – sales, marketing and strategy of Airbus said the future growth of Indian market would be in the LCC (low cost carrier) segment. If you look at the customer base in India, we have always secured good orders from LCC.

With a recent order of 100 Airbus A320 aircraft, including 36 A320ceo (current engine option) aircraft with Sharklets, altogether, AirAsia has ordered 475 single aisle aircraft from Airbus, comprising 264 A320neo (neo engine option that promises to be 15 per cent fuel efficient) and 211 A320ceo. Additional delivery slots for these aircraft are scheduled up to 2021.

For 2012, Air Asia Group (including Malaysia, Indonesia and Thailand operations) recorded passenger growth of 13 per cent year-on-year with approximately 33.8 million passengers carried, in line with the 13 per cent increase in capacity, the company said. Load factor for FY2012 remained strong at 80 per cent. Its total fleet size stood at 118 aircraft at the end of 2012.

balachandarg@mydigitalfc.com

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