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Business News/ Companies / News/  AirAsia gets approval for take-off, but...

AirAsia gets approval for take-off, but...

Finance ministry clears the deck for AirAsia-Tata proposal, but aviation ministry holds the aces

AirAsia will have a 49% stake in AirAsia India while Tata Sons will own 30% and Arun Bhatia of Telestra Tradeplace is to hold the remaining 21%. Photo: AFP (AFP)Premium
AirAsia will have a 49% stake in AirAsia India while Tata Sons will own 30% and Arun Bhatia of Telestra Tradeplace is to hold the remaining 21%. Photo: AFP

New Delhi:

India’s finance ministry overruled the reservations of the aviation ministry to clear a proposal submitted by AirAsia Bhd and the Tata group to start India’s eighth passenger airline with an initial investment of $14.5 million (around 80 crore) on Wednesday.

The approval of the plan by the Foreign Investment Promotion Board (FIPB) on Wednesday reflected apparent differences between the departments headed by finance minister P. Chidambaram and aviation minister Ajit Singh.

“There was (initially) some ambiguity," said Arvind Mayaram, economic affairs secretary in the finance ministry, referring to the debate about whether new ventures were allowed under a September rule change. That’s when the government allowed foreign airlines to invest in Indian ones to the tune of 49%, as part of efforts to help domestic airlines get much-needed funds. As a result of this, Etihad Airways PJSC is said to be close to picking up a 24% stake in Jet Airways (India) Ltd.

The AirAsia venture is a new airline that takes advantage of the rule change. AirAsia will have a 49% stake in AirAsia India while Tata Sons Ltd will hold 30% and Arun Bhatia of Telestra Tradeplace Pvt. Ltd, the remaining 21%.

On Wednesday, Mayaram went on to clarify that the proposal to start a new airline doesn’t breach the cabinet decision of September.

“It’s as per press note 6 of DIPP (department of industrial policy and promotion). It is very clear, it’s as per the policy. Up to 49% FDI (foreign direct investment) is allowed. 80 crore or so is the initial (investment)," Mayaram said.

Another senior finance ministry official, who didn’t want to be named, clarified that the cabinet decision of September did allow for new joint venture airlines to be set up in India with foreign investment.

Following the approval, “they will have to take the necessary licences, etc., from the DGCA (Directorate General of Civil Aviation). They can start operating now once they get the licence".

Civil aviation secretary K.N. Srivastava represented the aviation ministry at the FIPB meeting. He declined to comment on the subject.

Aviation minister Singh didn’t appear to be wholly enthusiastic about the approval.

“The commerce ministry should change that note—they issued that note," he told reporters after the AirAsia proposal was approved, referring to the DIPP note mentioned above.

Singh refused to be drawn when asked whether there would be any hurdles in the way of the plan.

“I don’t know what FIPB has decided," Singh said. “They have to go through whatever aviation ministry has to check. Overall, I don’t see any problem."

Ratan Tata, chairman emeritus of Tata Sons, who has been personally driving the investment plan, welcomed the approval.

“FIPB approval of the airline project between Tatas, AirAsia and Bhatias reflects the true investor friendly policies of the govt. This and other similar actions will, without doubt, reinforce investor confidence in India," Tata said in a tweet on Wednesday evening. “I applaud the govt for its transparency and its principled implementation of the stated policy."

Still, there may be uncertainties in the road ahead, said a person familiar with the matter, who declined to be named. This person also suggested that vested interests could try to scuttle the plan without elaborating.

AirAsia and Tata had announced the plan on 20 February. Once FIPB’s approval is formally communicated, AirAsia India Pvt. Ltd has to be set up and registered. It will then have to apply to the ministry of civil aviation, presenting a business case on why it should be allowed to run an air transport service.

The ministry will then give it a no-objection certificate in consultation with the aviation regulator, DGCA.

AirAsia India will then approach DGCA directly for an air operator permit and present its safety operations and engineering preparedness before being declared India’s eighth scheduled airline.

The airline will fight established operators such as Air India, IndiGo, Jet Airways, Jet Konnect, SpiceJet and GoAir for the share of a market that slowed in 2012.

AirAsia India plans to start operations by the end of the year from Chennai’s newly upgraded airport.

Parent AirAsia is South-East Asia’s biggest airline with 108 aircraft and 475 on order for its Malaysia operations, Thai AirAsia, Indonesia AirAsia, AirAsia Philippines and AirAsia Japan. The Philippine and Japan ventures are not yet profitable.

If the venture starts operations, it will mark the re-entry of the Tatas into the aviation business since 1953, when J.R.D. Tata-founded Air India was nationalized.

Ratan Tata had met minister Singh at his home last month in what was termed as a courtesy call.

“Mr Tata is a very big man in India (and elsewhere) and, when he speaks, the government acts," said Steve Forte, former Jet Airways chief executive. If the documentation is in order, the “ministry should not delay proceedings. The new carrier might be flying well before the year is over! If you and I were to start an airline, it would take several years to get an operating certificate. I think the government is also anxious to get some foreign investments in the air industry now that they passed the foreign participation law for airlines".

The joint venture may have crossed the first hurdle, but the real one is DGCA, said Chennai-based safety analyst and member of the Civil Aviation Safety Advisory Council Mohan Ranganathan.

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Published: 06 Mar 2013, 12:49 PM IST
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