India's Tata Sons, Singapore Airlines To Launch New Full-Service Airline in India

Tata Sons Ltd and Singapore Airlines (SGX:C6L) have announced that they have signed an agreement to launch a full-service airline in India, in what is the joint venture's third attempt in two decades to take off in India’s crowded, yet troubled and unprofitable, aviation sector.

The companies, in a joint statement issued on Thursday, said that they have filed an application with the Foreign Investment Promotion Board, or FIPB, for permission to launch the new airline, which will be based in New Delhi, India’s capital city.

In keeping with India's foreign direct investment, or FDI, rules for the aviation sector, which were relaxed a few months ago to allow foreign players, Tata Sons will have a 51 percent stake in the joint venture with Singapore Airlines holding the rest.

The companies will invest $100 million initially in the airline, which will have three board members -- two nominated by Tata Sons and one nominated by Singapore Airlines -- to begin with. The chairman of the proposed airline will be Prasad Menon, nominated by Tata Sons.

“It is Tata Sons’ evaluation that civil aviation in India offers sustainable growth potential. We now have the opportunity to launch a world-class, full-service airline in India,” Menon said, in a statement.

The Tata group, which is a global conglomerate that owns brands such as Jaguar Land Rover, the Nano small car and Mumbai's Taj Mahal Palace hotel, has been passionate about re-entering the airline business, ever since it lost control of the group’s airline, Tata Airlines, in the 1950s following the nationalization of the country's aviation sector.

Tata Sons and Singapore Airlines had made two unsuccessful bids to launch a new airline in India -- the first was in the mid-1990s and once later in 2000-01 -- only to reportedly face stiff resistance from the government and some sections of the industry.

However, with the Indian government opening up the aviation sector to FDI up to 49 percent last year, a number of foreign companies have moved to invest in India's aviation sector. This is the second partnership for the Tata group in the sector this year, following its decision to partner with Malaysian budget-carrier AirAsia in India.

"It is indeed encouraging to see foreign airlines expressing an interest to meet the rising passenger growth in the country," Rajiv Chib, PricewaterhouseCoopers associate director, told Indo-Asian News Service.

Abu Dhabi-based Etihad Airways also has entered into a $379 million deal to purchase a 24 percent stake in India’s Jet Airways (BOM:532617). The deal is expected to get a nod from the Cabinet Committee on Economic Affairs within the next two weeks, Forbes reported Thursday, citing government regulators.

The Tata group's history with Indian aviation can be traced back to the 1930s when it started India’s first private airline service -- Tata Airlines. In 1932, the group’s then chairman, JRD Tata, became India's first pilot. Tata Airlines was subsequently renamed as Air India in 1946 and nationalized in 1953 to become the nation's flag carrier.