FIPB nod for AirAsia JV; but minister hints at delays

Malaysian budget airline AirAsia today got the approval of Foreign Investment Promotion Board to set up a new airline in India in partnership with Tata Sons and Telestra Tradeplace.

The new joint venture will begin operations once it gets the licence from the DGCA. The new airline is looking to start flying from this year-end with 3-4 planes and an initial investment of about $50 million by the Malaysian budget carrier.

Official sources told Firstpost that in principle they supported the Tata-AirAsia proposal. However, the law allows foreign airlines to pick up stake in existing domestic players.

"We have sought clarification from DIPP if such a proposal (like that of Tata-AirAsia)can also be covered under this," a source said.

Even civil aviation minister Ajit Singh said today that the airline may not face major hurdles but it will face procedural problems in obtaining its licence.

Senior Government sources had earlier told Firstpost that the purpose of allowing foreign airlines to invest in Indian carriers was to improve the financial health of Indian carriers through such investments. The intention was not to encourage setting up of new airlines where foreign airlines are involved since this would help existing players in no way at all.

In short, Tata-AirAsia has a long road ahead before taking wings.

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The airline, which will be based out of Chennai and will cater primarily to tier-2 and tier-3 cities

According to the guidelines for foreign investment in the civil aviation sector, which were notified by the ministry on March 1 and made public yesterday, any foreign entity which invests in an Indian airline cannot have more than one-third representation on the airline's board of directors.

So even though it has got the FIPB clearance, how will the airline be structured when Tatas have made it clear that they will not have any operational role. If AirAsia hires Indians to key management positions in the new airline, it still creates a conflict with these guidelines since technically, it cannot have more than one-third representation on the airline's board. So these representatives need to be backed by the Tatas and the Bhatias.

Hence, will it finally become a curious case of pussyfooting around the rule book to run successful operations?

The proposed joint venture will operate from Chennai and will focus on providing domestic connectivity to Tier-II and Tier-III cities, a statement by the Malaysian carrier from its headquarters in Sepang had said earlier this week.

A senior airline industry professional pointed out that even when the procedural issues are sorted out and the airline does take off, it will grapple with serious cost issues. Indian operating environment remains very high cost for its own airlines and the new AirAsia venture is unlikely to be able to offer the lowest fares it is famous for across Asia.