(Rewrites first paragraph, adds analyst comments, details on
By Al-Zaquan Amer Hamzah and Anurag Kotoky
KUALA LUMPUR/NEW DELHI Feb 20Malaysia's AirAsia
Bhd, Asia's largest budget carrier, plans to launch a
regional airline in India in a venture with the Tata group,
marking a return to aviation for India's biggest business house.
The new airline, AirAsia India, will be managed by the
Malaysian company and based in the southern city of Chennai.
Serving smaller cities, it will enter a fiercely a competitive
Indian market that has proved challenging for AirAsia.
India's aviation industry, which has been plagued by losses
due to high operating costs and fierce competition, was opened
to foreign investors in September last year. Foreign carriers
are now able to purchase up to 49 percent of local airlines.
No foreign airline has bought a stake in a local carrier
since India relaxed its investment rules, although Abu Dhabi's
Etihad Airways is in talks to buy a stake in Jet Airways
AirAsia, through its investment arm, will own 49 percent of
the new airline, with Tata Sons Ltd, the holding
company of salt-to-software conglomerate Tata Group, owning 30
percent. Arun Bhatia, who owns Telestra Tradeplace, an
investment firm, will hold the remainder.
Tata Sons said in a statement it will not have an operating
role in the proposed new carrier.
"It's a formidable combination. It brings (together the) ...
expertise of two giants," said Rajan Mehra, India head of
U.S.-based private jet operator Universal Aviation and ex-head
of Qatar Airways' India operations. "They will expand the
market. Wherever AirAsia has gone, they have brought in new
Tony Fernandes, AirAsia's chief executive, said in a
statement: "We have carefully evaluated developments in India
over the last few years and we strongly believe that the current
environment is perfect to introduce our low fares."
Tata Airways was India's largest airline before the
government took it over in 1953 as part of its nationalisation
drive following India's independence from Great Britain and was
rebranded Air India.
In 2000, the Tatas and Singapore Airlines jointly
bid for a stake in Indian Airlines, the state carrier that later
merged with Air India, although rules preventing foreign
airlines from investing in Indian carriers thwarted a deal.
Budget carrier SpiceJet, India's No. 4 operator by
market share, runs a business model similar to the one proposed
by the AirAsia venture. Last year, AirAsia held talks to buy a
stake in SpiceJet, a senior government source had said.
AirAsia flies to four south Indian cities and the eastern
city of Kolkata in addition to 20 countries across Asia and has
indicated it plans to slow its overall expansion elsewhere.
AirAsia X, the long-haul carrier founded by Fernandes, last
year pulled out of India due to poor demand and profitability.
India's two biggest cities, Mumbai and Delhi, were taken off
the AirAsia network last year due to a failure to access local
distribution lines, according to market researcher the Centre
for Asia Pacific Aviation (CAPA). "Securing the right local
partner could resolve many of the challenges AirAsia has faced
in serving India from its home markets," CAPA said in a report.
Another Indian carrier, former No. 2 operator Kingfisher
Airlines, has not flown since the start of October
after racking up debt estimated as high as $2.5 billion and
faling to pay staff, airports, banks and others.
(Editing by Tony Munroe and David Holmes)