Tata Group To Cover Aviation Value Chain

Sept. 30, 2013
New ventures to include operating airports, building an aircraft repair and maintenance facility and developing IT services.

Sept. 30--MUMBAI -- Rather than restricting itself to just running airlines in India, the $100 billion Tata Group plans to start businesses in the entire aviation value chain that would include operating airports, building an aircraft repair and maintenance facility and developing an information technology backbone for aviation services.

The group has plans to leverage group companies to establish and support its broader interests in Indian civil aviation, according to a person close the development. He spoke on condition of anonymity.

"The Tata Group already has interests in catering, airlines, aircraft engineering and IT support," he said. "It will also enter airport sector to compliment its interests in Indian civil aviation industry. It has plans to enter aircraft repairing facilities in the long run."

The group has bought global tender documents of the Chennai and Lucknow airport modernization programmes, Tata group executives said on condition of anonymity.

On 19 September, after being thwarted twice by political and corporate intrigue, Tata Sons Ltd and Singapore Airlines Ltd (SIA) teamed up for a third time to jointly enter the Indian aviation market with a proposal to invest $100 million in a full-service airline based out of New Delhi.

Tata Sons, the holding company, and SIA have signed an agreement and applied to India's Foreign Investment Promotion Board (FIPB) for approval to set up the new airline, in which Tata Sons will own 51%.

The development surprised the market because Tata Sons had already agreed to join a venture with Malaysia-based AirAsia Bhd and Arun Bhatia of Telestra Tradeplace Pvt. Ltd to form a local low-fare airline that's waiting for the Indian aviation regulator's final go-ahead. AirAsia has a 49% stake in that venture, with Tata Sons taking 30% and Bhatia holding the rest.

The Tata Group has over 100 operating companies in seven business sectors including communications and information technology, engineering, materials, services and consumer products.

"Many of the group companies are expected to offer inputs and businesses to its aviation aspirations," said the person cited earlier.

Tata Group is also into air catering through TajSATS Air Catering Ltd, a joint venture between Indian Hotels Co. Ltd and SATS, formerly known as Singapore Airport Terminal Services. The group is yet to formalize a broader strategy in aviation but will look at related sectors, including aircraft repairs and other facilities as and when there is a business case, a Tata Group executive said, declining to be named.

"There are Tata companies in the infrastructure space. Airport-related projects fall within their interest areas, and they can and do consider participating in such projects,' a Tata Group spokesperson said in an emailed response. "As for Tata's possible interest in areas adjacent to civil aviation, we would not wish to speculate about any new activities and would merely say that any opportunities that present themselves will be considered on merits."

Tata Projects Ltd and Tata Realty and Infrastructure Ltd are eyeing airport projects in India from a purely engineering, procurement and construction (EPC) perspective. Airline firms are barred from taking an equity stake in airport companies.

The group is expected to take part in several other airport projects, including Navi Mumbai International Airport, which is coming up in Mumbai, said the first person cited in this report.

Tata Realty and Infrastructure had a tie-up with Singapore's Changi Airports to bid for airport projects in smaller Indian cities.

Tata and SIA has said their joint venture plans to engage in domestic and international full-service scheduled passenger airline services in aviation and "to undertake ancillary activities related to airline services including but not limited to air transport carriers (of freight), cargo handling incidental to air transport, renting and leasing (except financial leasing) of aircraft and other services incidental to air transport services."

Mint had reviewed the 20 September document submitted to FIPB.

The application document also said the joint venture company has great potential to benefit from Tata group's goodwill and network as it seeks to establish its business in India.

"Tata's contribution towards the JV (joint venture) company shall include: providing knowledge of the Indian market (including knowledge of customers and related market support); providing for secondment of personnel to the JV company; working towards creation of synergies between the JV company and other affiliates of Tata on a best efforts basis; and making reasonable efforts for the JV company to benefit from economies of scale offered by vendors to Tata in relation to goods and/or services as may be required by the JV company from time to time," the document said.

The Tata Group is no stranger to aviation. In 2000, Tata Sons and SIA abandoned a joint attempt to buy a 40% stake in Air India Ltd -- an airline which the group founded as Tata Airlines in the 1930s before it was nationalized in 1953. Political resistance and corporate rivalries were blamed for the Tata group abandoning the project.

An earlier attempt by the two companies to start an Indian airline with 40% equity contribution by SIA was also aborted.

In 2010, then-Tata Sons chairman Ratan Tata hinted that he had to abandon plans to launch an airline because he refused to pay bribes to authorities to secure the necessary approvals.

"SIA's entry into India with Tata, whilst being strategic, the step enhances SIA's global network footprint by giving the airline a much needed second hub," said Mark D. Martin, founder and chief executive officer at Martin Consulting LLC.

"The Tata-SIA and Tata-AirAsia joint venture will also have a rain-maker effect on India," Martin said. "Airports now should be aggressively knocking on the airlines' doors to sell its location. In times to come we will see progressive changes to India's landscape and with the FDI (foreign direct investment) policy supporting greenfield investment in airlines, a first in the world, employment in aviation and airlines will improve whilst support industries such as inflight kitchens, ground handling, airport operations support, aircraft spares and product support and other connected support industries such as transportation and hospitality will see positive growth."

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