AirAsia India's Take off Hits a Snag

Friday, 21st February 2014 at 10:30am

Tony Fernandes' local subsidiary, AirAsia India, hits a snag before it could even take off as the country's existing carriers are seeking disapproval of its application for a license to operate in India. The launch of the budget airline has long been delayed since the Indian aviation authorities approved the joint venture between AirAsia Bhd. of Malaysia and Tata Group of India.

AirAsia India is the offshoot of a joint venture between Asia's largest and pioneering low-cost carrier AirAsia Bhd. and India's largest business conglomerate, Tata Group. Though AirAsia Bhd. owns 49% only, as mandated by the newly-amended FDI law, it has a controlling stake of the joint venture as the 51% stakes are shared between two entities, Tata Group and Telestra Tradeplace.

The venture was formed in what could be the most opportune time when India's aviation industry was at the height of a crisis that caused the demise of one airline that used to lord it over the domestic skies.

The airline lobby group, the Federation of Indian Airlines (FIA), has shown its opposition against the entry of AirAsia India by drafting a letter to Prabhat Kumar, the Director General of Civil Aviation (DGCA) stating that its entry will drive the country's aviation industry into further trouble.

Four of the biggest privately-owned airline operators compose the lobby group who is opposed to the granting of a license to AirAsia India. Apart from their fears of more troubles to come in the country's aviation sector, they also argued that the new venture should have not been approved in the first place citing technical violations.

The newly-amended FDI law doesn't make any specification as to the status of a local airline which a foreign airline is investing on, whether it is an existing entity or a start-up. The lobby group has interpreted the law the way they see it saying that it applies only to existing airline.

The government, however, has reiterated that it has the right to interpret the law the way it wanted to in case of ambiguity. The government amended the decades-old aviation law in 2012 in the height of the country's commercial aviation crisis that resulted to widespread losses and labor unrest. The latest amendment to the aviation law specifically involves the increase of foreign companies' ownership in a local commercial carrier, from 24% to 49%.

Tata Group has also entered into a joint venture with another foreign airline operator, Singapore Airlines, to set up a full-service airline. It might also get the same treatment from the group that may also imperil its launch.

An industry analyst, however, said that the group's opposition against new entrants is merely sourgraping rather than advancing a valid cause.

By: Pete Lee.