by Devesh Agarwal
Malaysian low cost carrier AirAsia Berhad (Ltd.) through its investment arm, AirAsia Investment Ltd. (AAIL) has submitted an application to the Indian Foreign Investment Promotion Board (FIPB) seeking approval for AAIL to invest 49% into a proposed Indian joint venture together with Tata Sons Limited and Mr. Arun Bhatia of Telestra Tradeplace Pvt. Ltd. The expected holding in the JV is AirAsia 49%, Tatas 30%, and Arun Bhatia 21%.
|Photo: Devesh Agarwal|
This move comes amidst the backdrop of the September 2012 decision by the Government of India to open up the aviation sector to Foreign Direct Investment from foreign carriers.
AirAsia is one of the most successful low cost carriers in the world, and has created regional AirAsia airlines in Thailand, Indonesia, Philippines, and Japan in similar joint ventures like the one proposed for India.
The Tatas are a $100 billion conglomerate highly respected for their business values, and who used to own, then operate Air India prior to the government taking it over in the 1970s. The Tatas used to own close to 6% in Indian LCC SpiceJet Ltd., owned by the political heavyweight Marans who are related to DMK supremo Karunanidhi of Tamil Nadu. However, the Tatas claim their investment in SpiceJet is purely financial on with the two rounds of equity dilution at the airline, their stake is now down to less than 0.5%.
Mr. Arun Bhatia’s son Amit Bhatia, is the son-in-law of one the richest men in the world, Mr. L.N. Mittal and serves serves on the Board of Directors at Queens Park Rangers Football Club in the United Kingdom alongside Tony Fernandes, the founder of AirAsia.
Subject to FIPB approval, the proposed joint venture company will make an application to Indian aviation regulators for the Air Operators Permit. The parties have signed a Memorandum of Agreement that details high-level terms with regards to the proposed partnership.
The airline, if formed, will be based out of Chennai, which will allow domestic connectivity to AirAsia’s international operations.
This foray will mark a return of the Tatas to the airline and airport sector after almost 25 years. In the 1980s and 1990s, the Tatas had proposed a collaboration with Singapore Airlines to operate a domestic carrier and also to take over Air India. The Tatas had also collaborated with Changi Airport to develop the greenfield airport at Bangalore, which is now BIA. All efforts were thwarted by political opposition.
We are not sure how well this proposal will be received. India’s civil aviation minister is on record with the Business Standard newspaper
“We are not giving licences for greenfield airlines. As of now, FDI (foreign direct investment) in aviation can come only through existing airlines.”
Based on this premise, for the past few months, Jet Airways has been negotiating with Abu Dhabi based Etihad to sell a 24% stake in Jet for about $300 million. The Chairman of Etihad Sheikh Hamed bin Zayed al-Nahyan has already delayed the deal citing concerns on policy flip-flops. An approval to AirAsia will prove the Sheikh’s point, and almost certainly scuttle the FDI initiative, announced by the government last year, which is essentially meant for rescuing India’s debt-laden airlines and the banks who have already lent massive amounts to them.
We expect there will be strong, if not, insurmountable opposition especially with regards to existing Indian carriers like Jet Airways, SpiceJet and IndiGo, each of whom should not be discounted for their strong political connections.
So knowing all of this, why has this JV application been submitted? What do the Tatas, Bhatias, and Tony Fernandes know, that is not apparent?
|Photo: Devesh Agarwal|
If one was to go in to a conspiracy theory mode, the common point is SpiceJet.
From one side, the Tatas own a stake in the the airline. From the other side, Anthony Francis “Tony” Fernandes is in the very top Malaysian business tycoons circle, along with Mr. Ananda Krishnan, the Chairman of Maxis and Astro, both of which have been linked to the Maran brothers Dayanidhi and Kalanithi respectively, and Kalanithi Maran is the owner of SpiceJet, which has a need of funds for expansion.
Quoting from our Indian Aviation Review from earlier this year
Q400 operation is certainly a strong performer in SpiceJet’s tepid overall finances. The full order of 15 Q400s is now complete, and while SpiceJet has options to purchase 15 more from Bombardier, unfortunately it cannot find financing for the next 15 deliveries, which it desperately needs to expand the regional operation
May be Mr. Maran is wanting to exit the airline business?
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