Malaysia's AirAsia Seeks Regional Carrier Foothold In India With Tata Sons, Arun Bhatia Joint Venture

By Angelo Young | February 20 2013 12:07 PM

Asia’s largest budget carrier, AirAsia Bhd, based in Kuala Lumpur, Malaysia, will establish a regional airline in India in the first move by an outside carrier following India’s decision in September to open up its domestic airline market to foreign investment.

Reuters

AirAsia CEO Tony Fernandes

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The company will operate as a joint venture with Mumbai-based industrial conglomerate Tata Sons Ltd., which owns Jaguar Land Rover, and Indian businessman Arun Bhatia, who owns investment holding company Telestra Tradeplace Pvt.

The new carrier will be based in the southern city of Chennai, Tamil Nadu state. Under the proposal, through its investment unit, AirAsia Investment Ltd., AirAsia would hold the maximum 49 percent stake, while Tata would retain a 30 percent share as the carrier’s strategic financial investor, according to the Financial Times. Tata’s role would exclude operational decision, but the group will have two nonexecutive directors at the as-of-yet unnamed carrier, according to CNBC.

"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," AirAsia Chief Executive Tony Fernandes said in a statement to the stock exchange in Kuala Lumpur. "Subject to FIPB [Foreign Investment Promotion Board] approval, the proposed joint-venture company will make an application to Indian aviation regulators for the air operators permit.”In order to bolster a struggling industry weighted down by debt, Indian Prime Minister Manmohan Singh moved to open the sector to foreign investment as part of a broader policy to open up the Indian economy.

“It’s a very, very competitive joint venture,” the head of aviation market research firm CAPA’s Indian unit told Bloomberg. “The coming together of the largest pan-Asian carrier with India’s biggest corporate group -- this is very ideal.”

Indian civil aviation regulators say the potential venture has yet to formally seek approval. AirAsia is one of dozens of low-fare regional carriers that have popped up in recent years throughout the Asia-Pacific region. Its primary competitors are Tiger Airways and Scoot, owned by Singapore Airlines Ltd. (SGX:C6L), and Jetstar Airways Pty, owned by Qantas Airways Limited (ASX:QAN).