AirAsia readies to launch an Indian airline in partnership with Tata

AirAsia Bhd., Southeast Asia’s biggest budget airline, plans to start a venture in India with the Tata Group after the government eased rules to lure investment in a country where air travel is set to triple.

AirAsia made an application to India’s Foreign Investment Promotion Board to take 49 percent in a venture with Tata Sons Ltd., owners of Jaguar Land Rover luxury vehicles, and Arun Bhatia of Telestra Tradeplace Pvt. Subject to an approval, the partners will then seek an air operators permit, the low-fare carrier said in a statement to the Kuala Lumpur stock exchange.

The move will help AirAsia get an entry into a nation where economic growth is encouraging more people to ditch trains for planes, helping triple the number of domestic air travelers to 159 million annually by 2021, according to government estimates. To help an industry mired in debt and losses, Prime Minister Manmohan Singh’s government in September eased foreign investment rules prompting Jet Airways (India) Ltd. to start discussions with the Middle East’s Etihad Airways.

“It’s a very, very competitive joint venture,” said Kapil Kaul, who heads the Indian unit of CAPA. “The coming together of the largest pan-Asian carrier with India’s biggest corporate group. This is very ideal.”

Mittal’s Son-In-Law

Tata Sons, the holding company of the $100 billion Mumbai- based conglomerate, will hold 30 percent of the venture, Debasis Ray, a group spokesman, said in an e-mail. The group, which has interests in steel, hotels, software, beverages and automotive business, won’t have any operating role in the venture, he said.

Telestra Tradeplace is an investment holding company of Arun Bhatia, according to the AirAsia statement. His son, Amit Bhatia — the son-in-law of metals billionaire Lakshmi Mittal — and AirAsia Group Chief Executive Officer Tony Fernandes are also directors at Queens Park Rangers Football Club.

Arun Mishra, India’s Director General of Civil Aviation, said the venture hasn’t yet approached the regulator.

AirAsia is among the 50 low-fare airlines that started in the Asia-Pacific region in the past decade to compete with full- service carriers as first-time travel surges in India, Indonesia and other developing economies. Singapore Airlines Ltd. started Scoot and Tiger Airways Ltd. while Qantas Airways Ltd. started Jetstar Airways Pty.

Return of Tatas

The new airline plans to operate from Chennai in South India and will provide services to other local cities, AirAsia said in the statement. A carrier must complete five years of domestic operations before it can start overseas flights, according to Indian aviation rules.

“We have carefully evaluated developments in India over the last few years and strongly believe that the current environment is perfect to introduce AirAsia’s low fares,” Fernandes said in the statement.

The carrier’s shares fell 1.5 percent to 2.60 ringgit in Kuala Lumpur trading before the announcement. The stock has declined 5.1 percent this year.

The venture will also mark the return of Tata Group to aviation as India’s state-owned Air India Ltd. had grown out of Tata Airlines. In 1932, Tata Airlines began meeting Imperial Airways’ London-to-Karachi flight and then continued to Madras, now called Chennai, via Mumbai.

It used a de Havilland Puss Moth monoplane, which had a cabin instead of an open cockpit. J.R.D. Tata, then Tata Group chairman, piloted the inaugural flight, which hauled mail.

More than a decade back, Tata Group had teamed up with Singapore Airlines Ltd. to bid for a stake in Air India when the then-government sought to sell shares in the state-owned carrier. The plan was later dropped because of political opposition.

AirAsia has set up ventures in the Philippines, Japan, Thailand and Indonesia, as part of a strategy to expand in the region from its Malaysian roots. In December, the carrier ordered 100 Airbus SAS A320s valued at $9.4 billion, in addition to the 200 it had agreed in 2011 to purchase.

With assistance from George Smith Alexander and Bhuma Shrivastava in Mumbai. Editors: Anand Krishnamoorthy and Vipin V. Nair.

To contact the reporter on this story: Barry Porter in Kuala Lumpur at [email protected]. To contact the editor responsible for this story: Anand Krishnamoorthy at [email protected].