Jan. 24--MUMBAI/SINGAPORE -- Most of the pieces seem to be in place for the joint venture between Singapore Airlines Ltd (SIA) and Tata Sons Ltd to take off in India sometime early in the business year starting on 1 April.
A key decision came this month when SIA chose Airbus SAS's A320 planes for the full-service airline, which will take up to 20 of the aircraft worth $1.83 billion at list price. The planes will be sourced from leasing companies and not directly from Airbus, Reuters reported on 9 January, citing people it didn't name.
The partners have already incorporated the joint venture, with an initial investment of $100 million, as Tata SIA Airlines Ltd and have begun recruitment of pilots and other airline personnel after bringing key management and operational personnel on board.
Having already received the go-ahead from the Foreign Investment Promotion Board (FIPB), Tata SIA Airlines has to jump through two remaining regulatory hoops.
It has to secure a no-objection certificate from the ministry of civil aviation (the application is now being scrutinized by the home ministry) and then apply to the Directorate General of Civil Aviation (DGCA) for an air operating permit, which would be the greenlight for it to take off.
The launch would mark the realization of an ambition that Tata Sons and Singapore Airlines have together cherished for one-and-a-half decades, only to be thwarted twice.
In 2000, the two firms abandoned a joint attempt to buy a 40% stake in government-run Air India. An earlier attempt by the two companies to start an Indian airline with 40% equity contribution by SIA was also aborted. In both cases, political resistance and corporate rivalries were blamed.
For the Tata group, the launch of operations would mark the return to an industry it pioneered with Tata Airlines in 1932, which was renamed Air India in 1946 and eventually nationalized by the government in 1953.
For SIA, Southeast Asia's biggest carrier, too, the success of the venture, in which it has a 49% stake and Tata group holds the remainder, is crucial. The carrier has been seeking other markets as competition intensifies on existing routes. Last year, it sold its 49% stake in Virgin Atlantic after the investment failed to yield the expected returns.
Tapping a growth market
To be sure, the Indian market offers potential. India, the ninth largest aviation market, will become the fourth largest by 2016 with 107.2 million passengers, behind only the US, China and Brazil, the International Air Transport Association (Iata) said in a December report.
"I think the choice of India is probably obvious to most people, the kind of market potential that we could expect," SIA's chief executive officer Goh Choon Phong said at an analysts' conference in November, two months after tying up with Tata Sons.
He listed the factors that made India an attractive market.
"The population is expected to reach 550 million people in the middle class by the year 2025; 430 million of the population are between 15 and 34, a very young population, productive, and very, very low trips per capita, 0.04. Contrast that with, let's say, China, at 0.3, and with the developed countries like the US, Europe, at 2. So there is huge potential for this market," Goh said.
He explained the significance of the joint venture.
"It allows us to participate directly in this huge growth market. India is obviously one of the two huge engines of growth in Asia. It allows us, therefore, also to diversify our traffic base and not just be only dependent solely on Singapore traffic base. And also because of the locations of both SIA in Singapore and this new venture in India, we see good commercial synergies in the future when this airline is set up."
Even before Singapore Airlines tied up with the Tata group, entities from the city-state have been quietly building (or trying to build) a presence across the value chain of Indian aviation -- catering and ground handling, engineering and airports.
The proposed airline has approached two advertising agencies to suggest a new brand name ahead of its launch.
As many as 15 top-level executives, five of whom were CEOs, have exited Indian airlines in the last year.
The civil aviation ministry cleared the Tata SIA Airlines Ltd project, the joint venture with Singapore Airlines Ltd (SIA), in what is the most important step in the process to take off.
Federation of Indian Airlines tells aviation authority that granting AirAsia a permit would drive the industry into further losses.