Singapore Airlines Plans Indian Carrier With Tata Group

Singapore Airlines Ltd. (SIA) tied up

with Tata Group, owner of the Jaguar and Land Rover brands, to

start an airline in India, its third attempt to tap the surging
travel demand in the world’s second-most populous nation.

Tata will hold 51 percent of the venture and Singapore Air

the remainder, the airline said in a statement yesterday. The

two companies entered into an initial agreement for a $100

million investment and are seeking government approval to set up

the full-service carrier, to be based in capital New Delhi.

Entering India will enable Singapore Air to get a foothold

in a market where the number of air passengers is forecast to

triple to 452 million by 2020. Asia’s third-largest economy last

year permitted foreign airlines to buy stakes in local airlines,

a move that brought in investments from budget carrier AirAsia

Bhd. (AIRA) and Abu Dhabi’s Etihad Airways PJSC.

“This is terrific news for Indian aviation,” said Mark D.

Martin, chief executive officer of Dubai-based Martin Consulting

LLP. “The Tata-SIA venture will provide the much-needed balance

in Indian aviation space between full-service and budget

carriers.”

Prime Minister Manmohan Singh’s government changed laws

last year to allow foreign airlines to buy as much as 49 percent

in local companies, reversing a decade-old ban that had kept out

carriers like Singapore Air from the Indian market.

Five Airlines

AirAsia also chose Tata for its venture in India. Tata Sons

Ltd., the holding company for the group, owns 30 percent in the

new discount carrier, which is awaiting final approvals to start

operations later this year.

Arun Bhatia of Telestra Tradeplace Pvt., who owns 21

percent in AirAsia India, is ready to buy out Tata’s stake in

the budget airline venture as the group announced its second

airline with Singapore Air, ET Now television reported, citing

Bhatia. Bhatia didn’t respond to four calls and two text

messages to his mobile phone. Debasis Ray, a spokesman at Tata

Sons, declined to comment on the ET Now report and said AirAsia

didn’t object to the group forming a full-service airline.

Entering India is not without risks. Airlines have to

confront the region’s highest fuel costs, a depreciating

currency and the lack of adequate infrastructure.

Maran, Mallya

Jet Airways (India) Ltd. (JETIN), the carrier that Etihad is

investing in, hasn’t made a group profit for six years. SpiceJet

Ltd. (SJET), controlled by billionaire Kalanithi Maran, posted losses

for a second straight year in the period ended March 31. Liquor

baron Vijay Mallya’s Kingfisher Airlines Ltd. (KAIR) grounded its

planes last year after mounting debt and struggling to pay

salaries.

Shares of Singapore Air fell 0.3 percent to S$10.44 at the

close of trading in the city-state. The stock has fallen 2.9

percent this year. Nine of 21 analysts recommend investors buy

Singapore Air stock, while seven say hold and five sell,

according to data compiled by Bloomberg.

Jet Airways shares have slumped 36 percent in Mumbai

trading this year and SpiceJet 50 percent.

India’s economic growth has helped double airline-passenger

traffic in the country over the past seven years. Five airlines

operate in India’s skies now. The nation’s aviation rules don’t

bar companies from forming two ventures, Civil Aviation Minister

Ajit Singh said yesterday.

‘High Growth’

“The Indian aviation industry is projected to experience

future high growth rates,” Singapore Air said in the statement.

“The recent Indian government decision to allow foreign

airlines to invest up to 49 percent in Indian carriers provides

an opportunity for SIA to participate directly in one of the

fastest growing and largest aviation markets globally.”

Tata doesn’t see a conflict of interest in partnering with

Singapore Air for a full-service airline and AirAsia for a

budget carrier, Mukund Rajan, a group spokesman, said in a phone

interview. The $100 billion conglomerate has businesses ranging

from automobiles, hotels, steel and software.

The group formerly operated Tata Airlines that later became

state-owned Air India Ltd. In 1932, Tata Airlines began meeting

Imperial Airways’ London-to-Karachi flight and then continued to

Madras, now called Chennai, via Mumbai.

It used a de Havilland Puss Moth monoplane, which had a

cabin instead of an open cockpit. Former Chairman J.R.D. Tata

piloted the inaugural flight, which hauled mail.

Air India

Singapore Air has tried in the past to enter the market. In

1994, the company and Tata formed a venture to start an airline

in India. Policy changes prevented that from starting and in

1998, Mumbai-based Tata dropped its plan to start an airline.

In November 2000, Tata and Singapore Air teamed up again,

to buy 40 percent of state-run carrier Air India that the

government was putting on the block. In September 2001,

Singapore Air decided not to proceed with that plan.

“The Tata-SIA joint venture was long overdue, and should

have started 15 years back,” said Kapil Kaul, head of the

Indian unit of consultant CAPA Centre for Aviation. “Foreign

direct investment rules are game-changing and we will see a new

era in Indian aviation, subject to government not creating

regulatory challenges.”

To contact the reporter on this story:

Karthikeyan Sundaram in New Delhi at

kmeenakshisu@bloomberg.net

To contact the editor responsible for this story:

Anand Krishnamoorthy at

anandk@bloomberg.net

Singapore Airlines Plans Indian Carrier With Tata Group