AirAsia India Might Never Take Off

Friday, 21st February 2014 at 07:51am

The operation of the Indian subsidiary of Malaysia-based AirAsia might never see its day after it was haunted by strong opposition from a group of private airline operators in the country.

The country's aviation industry has been rocked with problems in recent years ranging from mounting debts to huge losses and labor unrest affecting all but one Indian carrier. It claimed the life of Kingfisher Airlines who was the country's second largest airline before its untimely demise in 2012.

The Federation of Indian Airlines (FIA) has showed its collective opposition to the granting of operating license to AirAsia India which they deem as an anomalous business venture because it violates the existing or newly-amended FDI policy in the aviation business.

The FIA members include the country's major privately-owned carriers, namely: Jet Airways, IndiGo, SpiceJet and GoAir.

AirAsia Bhd of Malaysia and India's largest conglomerate, Tata Sons Ltd., forged a joint venture in early 2013 to set up a local subsidiary of the largely successful low-cost carrier. The partnership between the two entities came after the government eased its FDI policy in September 2012 during the height of years-long crisis that rocked Indian commercial aviation industry. The amended policy seeks to attract foreign investors to the troubled Indian aviation sector.

In the newly-amended FDI policy, foreign ownership in an airline joint venture is increased up to 49% of the total shares from 24% in the outdated law. In its joint venture with Tata Sons Ltd., AirAsia Bhd. holds the 49%, the maximum allowed stakes to foreign investors (single or joint ownership), while the majority stakes are held by local investors.

The FIA members have questioned the legality of the joint venture (AirAsia India) as it allegedly violates the existing law which, they say, is only applicable to existing airlines. AirAsia India, therefore, is not a legal venture under the newly-amended law.

However, the Delhi High Court issued a statement, dated February 11, that the government has the right to interpret the newly-amended FDI policy the way it wanted to. It further made clarifications to the public that the newly-amended FDI policy is meant to attract foreign investors to pour in their capital to both new and existing airline companies.

The launch of AirAsia India's operation has been long delayed since the middle of last year for undisclosed reasons.

Some say that it might be due to another legal impediment that prohibits new airlines to serve international routes if they don't meet the minimum requirement as set by the government. The existing law states that an airline has to satisfy the minimum 5-year commercial domestic operations and a fleet of no less than 20 aircraft before they can operate international flights.

Whatever is the cause of delay, AirAsia India might not be able to fly so soon.

By: Pete Lee.