The decision of (SIA) to establish a joint-venture Indian carrier with the Tata Group signals that foreign carriers are still willing to invest in India. The move could be a sign that the worst is over for an industry plagued with losses—or it could just make matters worse.
After two previous failed attempts, Tata Sons Ltd. and SIA cobbled together an alliance in mid-September to enter the Indian aviation market with a proposal to invest $100 million in a carrier called Tata SIA Airlines. It will join a sector in which airlines are burdened by heavy debt and accumulated losses in the face of stiff competition, suppressed demand and extraordinarily high fuel costs, far above world market levels, besides other factors.
India's airline sector has seen the exit of Kingfisher Airlines, massive difficulties of, which is about to become a part of the growing ' so-called “equity alliance” and the never-ending story of mismanagement and losses at state-owned .
But this is not stopping what is likely India's most famous brand from investing in aviation, nor is Singapore Airlines overly concerned. “We have always been a strong believer in the growth potential of India's aviation sector and are excited about the opportunity to partner with Tata Sons in contributing to the future expansion of the market,” says SIA CEO Goh Choon Phong.
One of the most intriguing aspects of the decision is that the two partners are not setting up another low-cost carrier. Tata SIA Airlines will be a full-service carrier, one of the few high-profile launches in that segment worldwide in recent years.
SIA made its first bid to launch a joint-venture airline in India with Tata in 1995. But Indian authorities then turned down the proposal after introducing a change in civil aviation policy that barred foreign carriers from holding stakes in domestic airlines. This restriction was lifted in 2012. In 2000, the two firms had abandoned a joint attempt to buy a 40% stake in Air India—founded in the 1930s by the Tata Group as Tata Airlines—after the government decided not to privatize the flag carrier.
The chairman of the joint venture, Tata Sons' Prasad Menon, is optimistic this time around. “Civil aviation in India offers sustainable growth potential. We now have the opportunity to launch a world-class, full-service airline in India,” he says.
Tata SIA is the third foreign direct-investment (FDI) proposal that the Indian government has received since the policy change in 2012. Malaysian carrier, SIA's arch rival, was the first airline group to take advantage of the policy, forging an agreement with the same Tata Group to launch a joint venture low-cost affiliate, AirAsia India. Then came Abu Dhabi-based Etihad Airways' purchase of a 24% stake in Jet Airways, India's leading full-service private carrier.
“The easing of foreign investment norms last year has been a catalyst for long-term reforms in Indian aviation,” says Amber Dubey, aerospace head at KPMG. “Previously, foreign investors, but not airlines, were allowed to hold up to a 49 percent stake in local airlines. The willingness of foreign air carriers to do business in India is a harbinger of interesting times to come.”
International airline groups such as Emirates,, and have recently expressed interest in investing in an Indian carrier, if a good opportunity arises. Similarly, Indian low-cost carriers SpiceJet and GoAir are looking for foreign partners.
However, most Indian air operators are in crisis and direly need infusions of capital.
Sanat Kaul, chairman of the New Delhi-based International Foundation of Aviation, Aerospace and Defense, says that “foreign airlines will bring more capital into the country and improve the balance sheets of the Indian airlines.”
SIA, through a 49% stake in the proposed carrier, will have a major presence in a strategically important market. “The time is right to jointly bring consumers a fresh new option for full-service air travel. We are confident that the joint-venture airline will help stimulate market demand and provide economic benefit to India,” Phong says.
While the country's low-cost airline segment is growing fast, the collapse of Kingfisher Airlines created a void in the full-service segment. Even the leading private carrier, Jet Airways, is focusing more on its full-service offering. “The country now has only two full-service domestic airlines—national carrier Air India and Jet Airways. The new airline may be in a position to establish a competitive, hybrid business model that offers a high-quality product with a lower cost base,” says Dubey.
With few additional details available, analysts say it is likely that the new full-service airline will focus more on west-bound travel and try to take on airlines from the Middle East, which are already in expansion mode.
“Our assessment is that SIA is not coming just for the domestic routes. Its biggest strength lies in intercontinental, long-haul flights,” Dubey notes. “Nearly 70 percent of global traffic from India is west-bound—to the Middle East, Africa, European Unions and the Americas. Once SIA comes in, they can compete on those routes on the Indian quota of the bilateral agreements. It can also operate direct flights to the Far East and Australia from India.”
Local regulations require every Indian airline to operate in the domestic sector for five years before it can fly international routes. But aviation minister Ajit Singh asserts that the twin conditions that an Indian airline must be five years old and have 20 aircraft in its fleet to start overseas flights are both “unreasonable and not needed.”
Singh told a local newspaper that “this rule was wrong and possibly manipulated in the first place. The 20/5 conditions are not required. Indian airports need to become aviation hubs, and our airlines should not face such restriction in flying abroad when foreign airlines do not face any such conditions.”
Since the proposal for Tata SIA Airlines states that it will fly within India and on international routes, there is speculation about whether this will create a conflict of interest with Tata Group's low-cost carrier partner. AirAsia.
“There is no competition,” a Tata Group spokesman says. “AirAsia has known from the very beginning that we have been in talks with SIA and our plans to launch a full-service carrier. . . . The two airlines will complement each other.”
In the joint venture with AirAsia, the Tata Group will hold 30%, while Telestra Tradeplace will have a 21% stake. The remaining 49% will be owned by the Malaysian airline.
AirAsia India is going through the approval process and aims to launch services by year-end, with a focus on connecting secondary cities. The no-objection certificate from the aviation ministry will pave the way for a December or January launch of the proposed low-cost carrier.