The Foreign Investment Promotion Board (FIPB) today
cleared Malaysian low-cost carrier (LCC) AirAsia’s proposal to launch a
domestic airline in India, in alliance with Tata Sons.
The approval has come close to six months after the
government last year liberalised the country’s foreign direct investment (FDI)
policy, after a long debate, allowing foreign airline companies to hold up to
49 per cent stake in Indian ones.
Some news reports had yesterday suggested the proposal
could face hurdles from the civil aviation ministry after minister Ajit Singh
had said: “The commerce ministry should change the FDI guidelines to bring more
clarity on whether a new airline JV comes under its rules.” The doubt was on
whether these norms applied only on
foreign airlines investing in existing Indian ones or also on those setting up
JVs for greenfield operations. However, Singh said he supported the proposal in
principle.
A senior government official who attended the meeting
today said: “The proposal has been cleared. It’s in line with the policy, which
allows up to 49 per cent FDI.”
AirAsia promoter Tony Fernandes tweeted: “Exciting. Thank
you all... The good always wins. People and companies with good intentions to
create jobs and make life of an average man better will always win.”
AirAsia is to hold 49 per cent stake in the proposed JV,
while Tata Sons will hold 30 per cent and Delhi-based Telestra Tradeplace’s
Arun Bhatia 21 per cent. However, operational control of the airline would be
with AirAsia; Tata has made it clear it will only be an investor.
The next big challenge for the JV would be getting a
no-objection certificate from the civil aviation ministry and an air operator’s
permit from the Directorate General of Civil Aviation (DGCA). These could take
up to six months.
A senior ministry official today said: “AirAsia has not
applied for a permit. However, we have concerns on issuing a national permit to
a new airline. We would prefer it taking a regional permit. If such airlines
start flying on trunk routes, there will be overcapacity on those routes.”
The application of G R Gopinath for a national permit is
still pending with the ministry. Singh’s contention is that Gopinath’s airline
should first fly regional (for which it has a licence) before it could be given
permission to operate across the country and its licence could then be
upgraded.
Fernandes has already made clear his intention of
treading slow — starting operations in South and West India, rather than
nationally from day one. He plans to begin with four-five aircraft, with
Chennai as base and concentrate on Tier-II and III cities, instead of the
metros where airport costs are too high.
Unlike in Malaysia, where it had the first-mover
advantage, AirAsia will face a tough challenge from domestic LCCs, such as
IndiGo, which controls nearly half the LCC market and is growing rapidly with
new capacity. Also, it will not have the advantage of low ATF rates and airport
charges, which account for 50 per cent of costs.
Besides, the foreign carrier has not been able to make a
mark through its international operations in India. Experts, however, say its
entry could lead to a fare war in the Indian market, as Fernandes has publicly
said the fares of domestic LCCs are too high.
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