UPDATE 2-Malaysia's AirAsia forming Indian airline JV with Tata

Wed Feb 20, 2013 9:16pm IST

Stocks

   

(Rewrites first paragraph, adds analyst comments, details on Tatas)

By Al-Zaquan Amer Hamzah and Anurag Kotoky

KUALA LUMPUR/NEW DELHI Feb 20(Reuters) - Malaysia's AirAsia Bhd, Asia's largest budget carrier, plans to launch a regional airline in India in a venture with the Tata group, marking a return to aviation for India's biggest business house.

The new airline, AirAsia India, will be managed by the Malaysian company and based in the southern city of Chennai. Serving smaller cities, it will enter a fiercely a competitive Indian market that has proved challenging for AirAsia.

India's aviation industry, which has been plagued by losses due to high operating costs and fierce competition, was opened to foreign investors in September last year. Foreign carriers are now able to purchase up to 49 percent of local airlines.

No foreign airline has bought a stake in a local carrier since India relaxed its investment rules, although Abu Dhabi's Etihad Airways is in talks to buy a stake in Jet Airways .

AirAsia, through its investment arm, will own 49 percent of the new airline, with Tata Sons Ltd, the holding company of salt-to-software conglomerate Tata Group, owning 30 percent. Arun Bhatia, who owns Telestra Tradeplace, an investment firm, will hold the remainder.

Tata Sons said in a statement it will not have an operating role in the proposed new carrier.

"It's a formidable combination. It brings (together the) ... expertise of two giants," said Rajan Mehra, India head of U.S.-based private jet operator Universal Aviation and ex-head of Qatar Airways' India operations. "They will expand the market. Wherever AirAsia has gone, they have brought in new customers."

Tony Fernandes, AirAsia's chief executive, said in a statement: "We have carefully evaluated developments in India over the last few years and we strongly believe that the current environment is perfect to introduce our low fares."

LARGEST AIRLINE

Tata Airways was India's largest airline before the government took it over in 1953 as part of its nationalisation drive following India's independence from Great Britain and was rebranded Air India.

In 2000, the Tatas and Singapore Airlines jointly bid for a stake in Indian Airlines, the state carrier that later merged with Air India, although rules preventing foreign airlines from investing in Indian carriers thwarted a deal.

Budget carrier SpiceJet, India's No. 4 operator by market share, runs a business model similar to the one proposed by the AirAsia venture. Last year, AirAsia held talks to buy a stake in SpiceJet, a senior government source had said.

AirAsia flies to four south Indian cities and the eastern city of Kolkata in addition to 20 countries across Asia and has indicated it plans to slow its overall expansion elsewhere.

AirAsia X, the long-haul carrier founded by Fernandes, last year pulled out of India due to poor demand and profitability.

India's two biggest cities, Mumbai and Delhi, were taken off the AirAsia network last year due to a failure to access local distribution lines, according to market researcher the Centre for Asia Pacific Aviation (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.

Another Indian carrier, former No. 2 operator Kingfisher Airlines, has not flown since the start of October after racking up debt estimated as high as $2.5 billion and faling to pay staff, airports, banks and others. (Editing by Tony Munroe and David Holmes)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Earnings Season

Earnings Season

Reliance Q4 sales rise, refining margin narrows.  Read 

Innovative Solution

Innovative Solution

Turning smog into jewels - a Dutch designer's solution to Beijing's pollution.  Video 

Insider Trading

Insider Trading

Rajaratnam's brother loses bid to dismiss insider trading charges.  Full Article 

Literary Giant Dies

Literary Giant Dies

Mourning and memories in Gabriel Garcia Marquez's languid hometown.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage