The Tata Group and Singapore Airlines (SIA) are making a third bid to enter the Indian domestic aviation market.
On Thursday, they announced they had signed a memorandum of understanding and applied for Foreign Investment Promotion Board (FIPB) approval to establish a new airline in India.
"Subject to FIPB and other regulatory approvals, the airline will be based in New Delhi and operate under the full-service (FSC) model. Tata Sons will own 51% and Singapore Airlines 49%," a joint statement said. The two would jointly invest $100 million initially to set up the airline with Tata investing $51 million.
Tata and SIA first made an attempt to launch a domestic carrier in 1995, but the project failed to take off due to a change in civil aviation policy that barred foreign carriers from holding stake in domestic airlines. In 2000, the two bid for a stake in Air India but the offer was later withdrawn.
The Tatas are pioneers in the Indian aviation industry with JRD Tata starting Tata Airlines - later renamed Air India - in 1932.
Tata Group sources said they were approached by SIA with a proposal to start an Indian FSC in mid-2012, much before the Indian government changed rules in September that year permitting foreign airlines to pick up to 49% stake in domestic carriers. This was also before Malaysian budget carrier AirAsia approached the Tata Group with a proposal to start a low-cost carrier (LCC).
In February this year, the Tata Group announced it had signed an agreement with AirAsia and Telestra Tradeplace Pvt Ltd to launch an Indian LCC.
The proposed airline, AirAsia India, has already got FIPB approval and security clearance from the home ministry.
Tata said it would actively participate in the management and operations of both airlines. Industry experts, however, said having the same promoter could lead to issues between the two airlines when they start full-fledged operations as LCCs and FSCs offer more or less the same fares in India.
While a Tata Group spokesperson said present policy does not restrict a promoter from having stakes in two airlines, aviation minister Ajit Singh said it was for the corporate affairs ministry and market regulator Sebi to take a call as "aviation rules don't mention anything on this".
"AirAsia has known from the very beginning that we have been in talks with SIA to launch an FSC," the Tata spokesperson said. Sources said the airline could be airborne by March-April 2014.
Industry experts said Jet and Air India would be hit hardest.
"The Tata-SIA airline venture was long overdue... Hope this JV doesn't become a victim of negative aviation politics like in 90s," said Kapil Kaul, South Asia CEO of aviation consultancy firm Centre for Asia Pacific Aviation.
"We have the opportunity to launch a world-class full-service airline in India. We are delighted we are partnering in this endeavour with world renowned Singapore Airlines," said Prasad Menon, chairman of the proposed JV.
"With the recent liberalisation, the time is right to jointly bring consumers a fresh new option for full-service air travel. We are confident the airline will help stimulate market demand and provide economic benefits to India," said SIA CEO Goh Choon Phong.
Ashok Chawla, chairman of Competition Commission of India, said: "The first JV didn't require CCI approval and neither does the second since there is no merger and acquisition involved at this point. However, if the situation arises later based on the behaviour of the company and market trends, the CCI has the mandate to look into it."