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Airline back on Tata radar

Feb. 20: The Tatas are looking to fly again — but this time as a passive investor in a domestic airline venture.

Tata Sons, the holding company of the $100-billion group, has teamed up with Tony Fernandes of AirAsia Berhad, and Arun Bhatia, father-in-law of global steel magnate Lakshmi Mittal’s daughter Vanisha, to form a low-cost airline in India.

AirAsia of Malaysia, which prides itself on being the “largest, low-cost carrier in Asia”, will hold a 49 per cent stake in the new airline. The Tatas will hold 30 per cent and the remaining 21 per cent will go to Bhatia.

AirAsia Investment Ltd, the investment arm of AirAsia, has already submitted an application to the Foreign Investment Promotion Board (FIPB) to form the joint venture with Tata Sons and Bhatia-owned Telestra Tradeplace Pvt Ltd. Once the approvals come through, the joint venture will apply for an air operator’s permit.

AirAsia is the prime mover behind this plan. The Tatas say they are treating this foray as a pure investment play, which makes it a lot different from the gambit it made in 1995 to float an airline in collaboration with Singapore Airlines.

“AirAsia approached Tata Sons with the proposal for a stake in the venture,” a Tata group spokesperson said.

“Tata Sons will not have any operating role in the proposed venture. The airline will be managed by AirAsia,” the spokesperson added.

The spokesperson said the airline would not carry the Tata tag. But he refused to talk about the scale of investment in the airline.

The Tatas hold a small 2 per cent stake in SpiceJet, the budget airline operated by the Marans. The stake is held through Ewart Investment, a Tata group investment firm.

This is the first time that the Tatas will be picking such a substantial stake in an airline venture since it finally abandoned plans to float a domestic airline with Singapore Airlines back in September 2001.

“Tata Sons concluded that given its reputable business model, AirAsia could be a relevant and successful service provider in the domestic sector. That is the reason for Tata Sons’s investment in the AirAsia venture,” the spokesperson added.

AirAsia’s move also scotches rumours that Tony Fernandes has been in talks with the Marans of SpiceJet to pick up a stake in the budget airline.

Like SpiceJet, the new airline will be based in Chennai and aims to provide domestic connectivity to Tier II and Tier III cities.

In a statement issued today, AirAsia said the three partners had signed a memorandum of agreement spelling out the terms of partnership. The parties will sign definitive agreements, including a shareholders’ agreement, a brand licence agreement and other related documents once the FIPB approval comes through.

Arun Bhatia owns Hindustan Aerosystems Pvt Ltd, which manufacturers and supplies precision components for the aerospace industry. His son Amit married Vanisha Mittal at a lavish wedding held at the Palace of Versailles in France in June 2004.

Amit Bhatia had joined Queens Park Rangers Football Club in London as vice-chairman when the Mittal family picked up a small stake in December 2007, running the club’s affairs with Formula 1 motoring magnates Flavio Briatore and Bernie Ecclestone.

In May 2011, Amit Bhatia left the club over differences with the other co-owners over a number of issues, including the decision to raise ticket prices. He returned to the club’s board of directors when Fernandes took control of the Premier Division club in August 2011.

Fernandes appears to have invited the elder Bhatia to join his bid to form the airline, creating a formidable team of backers.

The 11-year-old AirAsia Group currently has a total fleet of 112 A320s. It is expecting 266 more aircraft to be delivered up to 2026. The airline is also in discussions to purchase another 100 aircraft to support the rapid growth of AirAsia in Asia.

AirAsia currently has joint ventures in Thailand, Indonesia, the Philippines and Japan. In the third quarter ended September 30 last year, AirAsia reported a profit of $50.96 million on revenues of $400.39 million. Two joint ventures — Thai AirAsia and Indonesia AirAsia — are also profitable. It is not known whether Fernandes plans to christen the new airline as India AirAsia.

Currently, AirAsia connects Calcutta, Chennai, Bangalore, Tiruchirappalli and Kochi to Asean cities through its operations based in Thailand and Malaysia.

Founder and group CEO Fernandes said: “We have carefully evaluated developments in India over the last few years and strongly believe that the current environment is perfect to introduce AirAsia’s low fares which stimulate travel and grow the market.”

“Tata’s re-entry into the aviation sector is good for the industry though we have to see if they get involved in the airline’s operations. AirAsia has a lot of experience. Its entry would increase competition in the low-cost carrier segment, which is a good thing for consumers. This would boost reasonable market growth,” said Amrit Pandurangi, senior director at Deloitte India.

The civil aviation ministry said AirAsia’s entry would increase “positive competition” in the sector.

“I hope AirAsia gets its clearance soon. The entry of a new airline would be good for the country,” said civil aviation minister Ajit Singh.

AirAsia stopped services to Mumbai and Delhi last year because of a failure to access local distribution lines, according to aviation think tank CAPA. “Securing the right local partner could resolve many of the challenges AirAsia has faced in serving India from its home markets,” CAPA said in a report.