Nearly two decades after their first attempt to operate an airline in India fell by the wayside, Tata Sons and Singapore Airlines announced on Thursday that they have signed a Memorandum of Understanding to set up a full-service airline. A statement by the partners said they have applied for Foreign Investment Promotion Board approval.
The initial investment in the joint venture is estimated to be $100 million, with Tata Sons pumping in $51 million for a 51 per cent stake and Singapore Airlines investing $49 million for the remaining 49 per cent.
This is the third proposal in the aviation sector since the Government allowed foreign carriers to acquire a 49 per cent stake in domestic airlines last September.
Initially, the board of the proposed airline will have three members, two from Tata Sons and one from Singapore Airlines.
Prasad Menon, Director, Tata Industries and former Managing Director, Tata Power, will be Chairman. Mak Swee Wah, Executive Vice-President, Commercial, will be Singapore Airlines’ nominee to the board.
Commenting on the development, Mukund Rajan, Member, Group Executive Council, Tata Sons, said: “Tata Sons will fully participate in the management and operations of the airline.”
‘No Conflict of interest’
Asked whether the launch of the new airline would not lead to a conflict of interest with Tata Sons’ three-way joint venture with AirAsia and Telstra Tradeplace for a low-cost airline, a Tata Sons spokesman said: “The two airlines do not compete in the same space. AirAsia has been fully aware of this joint venture and has no objection to the partnership.”
Civil Aviation Minister Ajit Singh told newspersons that aviation rules do not bar the Tatas from having two ventures and added that it was a matter for the Securities and Exchange Board of India and the Corporate Affairs Ministry.
The proposed airline could still face some hurdles as the Ministry of Civil Aviation had earlier argued that the change in FDI policy was meant to provide a lifeline to existing airlines and not start new ones. BJP Member of Parliament Subramanian Swamy has moved a Public Interest Litigation in the Delhi High Court against the venture with AirAsia over the same issue.
A senior Government official, however, felt the entry of Tata Sons with Singapore Airlines and Jet Airways’ tie-up with Etihad would change the domestic aviation market. “Given the cost structures here, you require people not only with deep pockets but also with experience in the airline business,” the official said, declining to be named.