AirAsia's joint venture with Tata Group airline gets Foreign Investment Promotion Board's green signal

New Delhi: Domestic air travellers will soon have the option of flying a Tata Group airline. The Foreign Investment Promotion Board (FIPB) on Wednesday cleared Malaysian low-cost carrier (LCC) AirAsia's proposal to form a budget airline in a JV with the Tatas and Telstra Tradeplace at an initial investment of Rs 80 crore.

After the FIPB meeting, economic affairs secretary Arvind Mayaram said: "They will now have to take the necessary licence from the Directorate General of Civil Aviation (DGCA). They can start operating now once they get the licence."

However, getting the aviation ministry's nod could prove to be a time-consuming process as it requires some changes in the recently liberalized foreign direct investment (FDI) policy. "I welcome the proposed new airline. But, the policy of FDI cleared by the commerce ministry allows foreign airlines to invest in existing Indian carriers. FIPB may have cleared the proposal but it has to meet the existing requirements. Now the commerce ministry will have to change that rule and allow a startup FDI JV," aviation minister Ajit Singh told TOI, while terming it a "procedural issue that will not derail the proposal."

Aviation secretary K N Srivastava, who attended the FIPB meeting, is learnt to have raised this issue and sought clarification from the department of industrial policy and promotion. Aviation ministry officials point out that "procedural issues" in the proposed AirAsia India JV. "As of now no company has been formed in this joint venture. So, under the current FDI rule, we may not be able to clear it till the commerce ministry makes the required changes or tells us it can be cleared in the current form under the existing rules," said a senior official. However, Ajit Singh reiterated that there was no opposition to the proposed new airline and that the ministry has already sought commerce ministry views on this issue.

Tata Group chairman emeritus Ratant Tata tweeted: "FIPB approval of the airline project ... reflects the true investor friendly policies of the government. This and other similar actions will, without doubt, reinforce investor confidence in India. I applaud the government for its transparency and its principled implementation of the stated policy."

Highly placed sources say that the government is unlikely to allow any technical issue to delay the new airline despite stiff opposition from some influential existing carriers, since the AirAsia-Tata JV is being seen as a test case of India's commitment to attract foreign investors. In the past also, Tata Group's attempts to enter aviation space by tying up with Singapore Airlines were thwarted by a big Indian airline and the government is unlikely to allow a repeat this time.

AirAsia chief Tony Fernandes has started making preparations for an early launch of the Indian subsidiary in which the Malaysian LCC, Tata Group and Telstra Tradeplace will have 49%, 30% and 21% stake respectively. Subject to getting the clearance from the aviation ministry, Chennai-based AirAsia India could take off as early as this summer with a fleet of three to four aircraft that would then be ramped up. Fernandes remains hopeful of an early nod and has already chosen an Indian as the JV's CEO and is looking at more recruitment.

"The good always win. People and companies with good intentions to create jobs and make life of the average man better will always win.... Fantastic range of candidates put in front of me by Tata and Sons. In my mind I can't believe the talent in India. Final call is Tata and Sons. Part of JV agreement but I know who my fave is. Hope they agree," Fernandes tweeted.

Once approved, AirAsia India will be the first real action after the government last year allowed foreign airlines to invest in Indian carriers. Captain G R Gopinath of Air Deccan fame is also planning to launch a start-up. Among existing airlines, Jet Airways is in advanced stage of talks with Abu Dhabi-based Etihad for investment. LCC SpiceJet and GoAir are also learnt to be in talks with foreign airlines. India's largest LCC IndiGo is being pursued by a number of foreign suitors but has so far not shown any interest in a stake sale. Grounded Kingfisher is yet to find an investor.