5 crucial things Tata-SIA said to India's investment board

The partnership between Tata Sons and Singapore International Airlines is being keenly watched in Indian aviation circles. This partnership will herald the arrival of the Tatas into aviation after two successive debacles earlier and most people will be curious to see how the new airline will survive in a cut-throat Indian aviation market, where full service airlines have either shut shop (like Kingfisher Airlines) or turned to hybrid fare service model like Air India and Jet Airways.

In this context, it is interesting to note that the application the two partners have filed with the Foreign Investment Promotion Board (FIPB) has many details of what the new airline proposes to do.

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Here are five things the two companies have said, which appear interesting:

1. The JV will offer domestic and international full service scheduled passenger airline. In the application itself, the partners have specified that the airline will be full service. Also, as of now, the 5/20 rule forbids domestic airlines from flying overseas unless they complete five years of domestic operation so the emphasis on international operations is also noteworthy.

[caption id=“attachment_1135031” align=“alignleft” width=“380”]  Ratan Tata, chairman of Tata Group. Reuters[/caption]

2. SIA will provide access to it global network, necessary technical expertise and global best practices to the new airline. It will also ensure that benefits of economies of scale accrue to the new airline through its own vendors for procurement of aircraft, spares and engineering services.

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3. The JV company which will run the airline is registered in India and will have its principal place of business in India. Chairman and at least two-thirds of its board of directors would be Indian citizens. Since the board will eventually have six members, this means at least four of the board members of the new airline will be Indians.

4. Also, the application assures the government that substantial ownership and effective control of the airline will remain in Indian hands at all times. This is important, since doubts over effective control have interminably delayed Etihad’s purchase of 24% equity in Jet Airways. The government is concerned over effective control in Jet shifting to Abu Dhabi with Etihad merely owning 24% stake in the airline. But here, Tatas have assured that control will remain with them at all times. Also, principal place of business of Tata-SIA will be India at all times, says the application. Here too, multiple questions have been raised by the government in the Jet-Etihad proposal.

5. The proposal says participation of an internationally reputed full service passenger airline operator in the JV company would increase competitiveness within full service industry in India and lead to provision of better services at competitive rates. Experts have warned that economies of scale in full service can only accrue once the airline begin international operations.