The Tata Group is getting back into the airline business with a vengeance. After losing Air India decades ago, it is currently in two joint ventures to take back what it gave up in India’s independence in the 1950s.
For its joint venture with Singapore Airlines, it signed a deal to lease 20 Airbus 320s from BOC Aviation this week, a fleet lease operation based in Singapore.
The Press Trust of India reported on Tuesday that Tata will begin receiving the planes by September or October in hopes it will have its permit to carry passengers by then. The Tata-SIA joint venture is a Delhi-based full service carrier with an initial investment of $100 million. Tata will have a 51% stake, and will start out with two flights a day.
Then there’s the creation of the AirAsia India start-up, which brings the Malaysian carrier to India’s domestic market.
AirAsia India was granted an air operator’s permit by the civil aviation authorities on May 7.
AirAsia and Tata still have hurdles to jump. The validity of the permit is subject to a Delhi High Court decision due next month. Ironically, a member of the BJP party, the pro-business political party that swept into office on May 16, claims the deal is in violation of India’s new foreign direct investment policy that permits foreign ownership of airlines.
United Arab Emirates carrier Etihad Airways was the first to jump on the policy when it bought a 24% stake in Jet Airways. Now Tata is using the measures to the max, and bringing in Singapore and Malaysian corporate investors to market.
Both deals are essentially start up joint ventures between Tata Sons, the conglomerate’s investment arm, AirAsia Berhad owned by Malaysian Tony Fernandes and Telestra Tradeplace, an investment holding company owned by Indian real estate magnate Arun Bhatia. Tata will own 30% of the company, Air Asia will own 49% and Bhatia will own 21%.
Under the new rules for foreign direct investing in civil aviation, foreigners can own up to 49%. But the fact that AirAsia India is a new entity means a judge will have to interpret how the new law applies. The case will be heard on July 11. That said, the Tata-Singapore Airlines deal is not being held under a similar microscope. It is more than likely that both deals will pass and Tata will be back in the air travel business. The company is already in travel and tourism. It owns the Taj Resort Hotels Palaces, a worldwide luxury hotel company based out of Tata headquarters at the Bombay House in Mumbai.
Back in Business
Tata has been in aviation before. One of the company’s most storied chief executives, J.D. Tata, the Walt Disney-esque Paris born entrepreneur and India’s first licensed pilot, created Air India in 1932. At the time, the country was under British colonial rule. Once the British left, India’s government soon encroached on the industry and by 1953 it took over Air India. The carrier is still a state-owned enterprise.
Like the Singapore Airlines deal, AirAsia India is expected to start with three domestic routes. Moreover, it is likely that the combined muscle and industry expertise of the venture partners will put Tata back in the international air travel business before long that it left over 50 years ago.
Tata Gets Back Into Airline Biz With A Vengeance