AirAsia India Hits Snags

Tuesday, 13th August 2013 at 05:36am

The Indian subsidiary of Tony Fernandez' newest venture has earlier planned to launch its maiden service on October this year. Due to a petition, however, this schedule will likely be postponed.

AirAsia India, the joint venture between AirAsia Bhd. and Tata Group, would likely put its scheduled launch on October on hold, following the petition filed recently by Subramanian Swamy, head of the Indian Janata Party.

Mr. Swamy filed the petition early last week urging the government, represented by Indian Foreign Investment Promotion Board (FIPB), to nullify the clearance it earlier issued to AirAsia India. He argued that the venture is illegal and has violated a number of provisions contained in the new FDI policy as amended by the government last year.

Though majority owned by Indian nationals, AirAsia India is still actually controlled by AirAsia Bhd as a single entity with a 49% stake in the venture. The remaining 51% is split between Tata Sons Ltd. and Telestra Tradeplace Pvt Ltd.

The newly-amended FDI policy in India states that a foreign investor in a local airline should not hold more than 49% stake.

Technically speaking, AirAsia India is a legal venture and doesn't violate any provisions as provided by laws. Only that the venture is a new company which, some critics say, violates the amended policy which states that foreign airlines are allowed to invest in existing local airline.

The petitioner contends that the policy applies only to foreign investment in an existing Indian airlines and not new ventures. This, in effect, disqualifies AirAsia India venture.

Mr. Swamy further said that in any new investment by a foreign airline in a local carrier, control should remain with local investors as per Indian law.

The AirAsia India venture, in contrast, is controlled by a foreign entity through AirAsia Bhd. who holds a majority stake of 49% as opposed to other two investors who split between them the remaining 51%. To be able to comply with the existing law, either Tata Sons or Telestra Tradeplace should own at least 50%, leaving the Malaysia-based company a minority stakeholder.

By: Pete Lee.