Malaysia's AirAsia Forms Joint Venture With Tata

Thursday, 28th February 2013 at 07:21am

Asia's first and largest budget airline, AirAsia, has formed a joint venture with Tata Group, India's largest multinational business conglomerate. The joint venture will result to the launch of AirAsia India, the first in India's aviation history where a foreign airline has a stake in a local carrier.

The newly formed airline will have its headquarters in southern Indian city of Chennai. AirAsia India, though majority owned by Tata Group, will be managed by AirAsia Bhd. It will serve smaller cities across the country where competition is proven to be very challenging, given the nature of the local aviation industry in India.

It has been noted that the Indian aviation industry has experienced financial difficulties with majority of its players pile up losses in the last five years. The escalating costs of jet fuel and the unabated airport taxes, among others, contribute largely to the high operating costs of Indian airlines. As a result, many airlines are in dire needs of cash to keep their operations going.

In September last year, the Indian government has succumbed to pressure, amending its decades-long FDI policy and lifted its ban on foreign investors in the country's aviation industry. This allows foreign airlines or foreign investors, for that matter, to own up to 49% stakes in a local carrier.

However, since the lifting of the ban on foreign ownership took effect immediately, there has been no takers until recently when Malaysia's AirAsia Bhd. announced the formation of a joint venture with Tata Group.

Etihad Airways, the Abu Dhabi-based airline, was rumored to have initiated talks with Jet Airways for a possible purchase of a minority stake but there has been no concrete agreement reached at the moment.

The investment arm of AirAsia will own the 49% stake in AirAsia India while Tata Group's primary trust company, Tata Sons, will hold the majority stake (30%) of the remaining 51%. Telestra Tradeplace owner, Arun Bhatia, will hold the rest of the stakes or 21% of the joint venture.

The formation of the new airline, according to Rajan Mehra, Universal Aviation operator, will combine the two giants to revive India's local aviation industry. He said that the budget carrier is expected to draw new customers to India, further expanding its network across the region.

Before Air India came into existence, Tata Airways lorded over the Indian commercial aviation business while enjoying its monopoly until 1953 when the government acquired its ownership. The government renamed it to Air India, which, for a long time, had been the country's largest airline until 2007 when it started to exhibit signs of financial hardship.

AirAsia currently offers service to 5 cities in India, 3 of which originate from Kuala Lumpur and the rest from Bangkok. Service to Mumbai and Delhi were discontinued last year.

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