NEW DELHI (Reuters) - India’s Tata Group and Singapore Airlines (SIAL.SI) plan to form a full-service airline based in New Delhi, adding a deep-pocketed player to a fast-growing but competitive Indian aviation sector where most operators lose money.
The two will initially invest a combined $100 million to start the carrier, with Tata Sons TATAS.UL owning 51 percent and Singapore Airlines, Asia’s second-biggest carrier by market capitalization, the rest.
The tie-up is the second airline joint-venture announced this year by the Tata Group, a salt-to-software conglomerate that is India’s biggest business group.
In February, Tata and Malaysia’s AirAsia Bhd (AIRA.KL) announced plans for a low-fare airline based in the south Indian city of Chennai. Tata has a minority stake in that venture, which aims to start service by the end of the year.
India’s domestic air traffic is expected to almost triple during this decade, the government estimates, as more of the country’s 1.25 billion people start flying and airlines connect smaller cities.
For now, the industry is hobbled by high fuel costs and taxes and low fares, with all but one of the five main carriers losing money. Low-cost, no-frills, airlines led by IndiGo account for about 70 percent of domestic traffic.
Kingfisher Airlines (KING.NS), a full-service carrier that was India’s second largest, has not flown in a year for want of cash.
“As far as the future is concerned, if the airlines get their acts right, the government gets its act right, it could just explode. This is something that the Tatas and Singapore Airlines must have seen,” said Rajan Mehra, India head of U.S.-based private jet operator Universal Aviation and ex-head of Qatar Airways’ India operations.
Last year, India allowed foreign airlines to buy up to 49 percent in local carriers in an effort to bolster the ailing industry. In April, Abu Dhabi’s Etihad agreed to buy a 24 percent stake in India’s Jet Airways (JET.NS).
“It is Tata Sons’ evaluation that civil aviation in India offers sustainable growth potential,” the Tata Group’s Prasad Menon, who will be the chairman of the planned carrier with Singapore Airlines, said in a statement.
India’s two full-service carriers, Jet and state-owned Air India AIN.UL, will feel the biggest competitive impact from the new tie-up, analysts said.
Amber Dubey, an aviation specialist at KPMG, said nearly 70 percent of international traffic from India is westbound.
“This will open up competition in the westbound routes from India,” he said. “With this JV, SIA (Singapore Airlines) gets a play in the growing international travel from India.”
India requires airlines to fly domestically for five years before flying overseas, although government officials have indicated that rule could be relaxed.
The joint venture needs numerous regulatory approvals and could take more than a year to be operational, said Kapil Kaul at the Centre for Asia Pacific Aviation, a consultancy.
Tata Airways was India’s largest airline before the government took it over in 1953 as part of its nationalization drive following India’s independence from Britain, and was rebranded Air India AIN.UL.
In 2000, Tata and Singapore Airlines jointly bid for a stake in Indian Airlines, the state carrier that later merged with Air India. Rules at the time preventing foreign airlines from investing in Indian carriers thwarted a deal.
Additional reporting by Aradhana Aravindan in Mumbai and Siva Govindasamy and Anshuman Daga in Singapore; Editing by Tony Munroe, Elaine Hardcastle and Mark Potter