The aviation sector in India has turned out to be the biggest beneficiary of the relaxation in foreign direct investment (FDI) norms with three big international carriers announcing entry into the Indian market within a year of the norms being changed.
Of the three airlines, AirAsia and Singapore International Airlines (SIA) have tied up with the Tata Group for an entry, while the third, Abu Dhabi-based Etihad Airways has entered into a deal to purchase 24 per cent stake in Jet Airways.
The Tata Group, Singapore Airlines joint venture will have an initial equity capital of $100 million and will be based out of New Delhi. Tata Group will own 51 per cent while Singapore Airlines the rest.
While the viability of a new airline in the already competitive Indian aviation market remains to be seen, analysts predict intense competition in the international sector.
“This will open up competition in the West-bound routes from India. Nearly 70 per cent of our global traffic from India is West-bound — to Middle East, Europe and the Americas. With this joint venture, Singapore Airlines gets a play in the growing international travel from India. Singapore Airlines can also operate direct flights to the Far East and Australia from India or route them through Singapore,” said Amber Dubey, partner and head of aviation at global consultancy KPMG.
In the domestic sector, the alliance is likely to impact Air India, the only complete full-service carrier in the country, the most. The competition will not only be in terms of operations but also in entering the Star Alliance, the largest global airline alliance, in which Singapore Airlines is already a member. Air India is trying to get into this alliance since the last two years.
“The Tata Group gets to join hands with one of the best airlines in the world. It may also open up their entry into Star Alliance, which may invite some resistance from other Indian legacy carriers. Delhi Airport’s position as a global hub will get a boost with both Air India and Tata-Singapore Airlines using it as a hub for long-haul flights. The resulting competition will improve services and lower prices. Overall, a great deal for India,” Dubey added.
An Air India official said that they have no issue with a second airline from India entering the Star Alliance.
“We want to be allowed to enter the alliance first and will have no issues with the entry of a second airline from India after that,” said a senior Air India official.
‘This investment is not in conflict with our AirAsia partnership’
On the day the Tata Group, Singapore International Airlines joint venture was announced, director-designate of the proposed airline Mukund Rajan told Mihir Mishra that the JV is not in conflict with the other alliance the Tata Group has with AirAsia. Excerpts:
In December 2012, Ratan Tata had said that he would hesitate to enter the aviation business. Today the group has announced yet another joint venture. What has changed since then?
Two key things have changed. First, greenfield airlines were allowed under foreign direct investment norms and we got a partner in Singapore Airlines, which is considered as one of the best airlines in the world.
Between the two, who approached whom?
We were approached by Singapore Airlines with a proposal to start an airline in the country.
Your Group also owns 30 per cent stake in AirAsia India. Was Tony Fernandes in the know about this deal?
This investment is not in conflict with our earlier investment in AirAsia India. All our partners in AirAsia India were aware of our talks with SIA and they have been very supportive in their approach.
Will Tata Group’s representation in AirAsia change with the deal?
Our ownership and representation on the board of AirAsia India will remain the same.