AirAsia seeks government nod to launch airline with Tata

mangaloretoday.com/NDTV

New Delhi, Feb 20: Malaysia’s AirAsia Bhd, Asia’s biggest budget carrier, said on Wednesday it is seeking approval to establish a joint venture involving unlisted Indian firms Tata Sons Ltd and Telestra Tradeplace Pvt Ltd.

"We have carefully evaluated developments in India over the last few years and we strongly believe that the current environment is perfect to introduce our low fares," AirAsia chief executive Tony Fernandes said in a statement.

 

AirAsia, through its investment arm AirAsia Investment Ltd, intends to own 49 per cent of the new airline with the remaining stake held by the two Indian firms. The venture plans to operate from Chennai and provide domestic flight options, said AirAsia.

The news comes after the carrier denied last year it was bidding for a stake in India’s SpiceJet Ltd, the country’s second largest budget airline.

India’s aviation industry, which has seen continued losses due to high operating costs and regulatory uncertainty, was opened to foreign investors in September last year. Foreign carriers are now able to purchase up to 49 per cent of local airlines.

No foreign airline has bought a stake in a local carrier since India relaxed investment rules. The UAE’s Etihad Airways is in talks to buy a stake in Jet Airways, but no agreement has been reached. Sources previously said it makes more sense for foreign carriers to start an airline with a local partner so they don’t have to assume the debt of an existing Indian airline.

AirAsia presently flies to four south Indian cities and Kolkata in addition to 20 countries across Asia and has indicated it plans to slow its overall expansion elsewhere.

AirAsia X, the long-haul carrier found by Fernandes, last year pulled out of India due to poor demand and profitability.

India’s two biggest cities, Mumbai and Delhi, were taken off the AirAsia network last year due to a failure to access local distribution lines, according to market researcher the Centre for Aviation (CAPA).

"Securing the right local partner could resolve many of the challenges AirAsia has faced in serving India from its home markets," CAPA said in a report.

Consultancy KPMG said in a note: "The Tata-AirAsia deal is in line with our estimate that the policy change will lead to equity deals in 2-3 existing airlines and 1-2 fresh start-ups. This will enhance competition, expand spread of air connectivity to tier 3-4 cities and bring down airfares for the Indian passenger."

"We may also see some consolidation in line with what’s happening in the US and EU since clearly, India -- with its low flyer-base, regulatory challenges and high cost structure -- cannot afford more than four strong national airlines."