Low-Cost Carrier Air Asia Plans Joint Venture with India's Tata Group

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By Prasanth Aby Thomas | February 20, 2013 10:30 PM EST

Southeast Asia's leading low-cost carrier Air Asia has said that it is planning to partner with Indian conglomerate Tata Group to launch an airline in the subcontinent.

The Malaysian airline revealed that it has sought the approval from India's Foreign Investment Promotion Board (FIPB) to take up 49 percent stake in a joint venture with Tata Sons and with a third investor, Arun Bhatia of Telestra Tradeplace. The three firms have signed a preliminary agreement.

"We have carefully evaluated developments in India over the last few years, and we strongly believe that the current environment is perfect to introduce our low fares," said AirAsia chief executive Tony Fernandes in a statement to the stock exchange in Kuala Lumpur.

"Subject to FIPB approval, the proposed joint venture company will make an application to Indian aviation regulators for the air operators permit," it added.

If the authorities grant the permission the planned joint venture will request operational license from aviation regulators. Air Asia is investing in the deal through Air Asia Investment Ltd, its investment arm.

India's airline sector had for long remained under strict restrictions for international companies. But in September, the Manmohan Singh-led government eased the stiff investment mandates to allow foreign carriers to own up to 49 percent stake in local airline companies.

The government's decision had given rise to a flurry of sector-wide joint-venture speculations. Jet Airways, a leading Indian airline is in talks with Abu Dhabi-based airways Etihad.

Air Asia itself was reported to be in talks with another Indian discount carrier, Spice Jet. But these reports were denied by the Malaysian carrier.

The current deal will give Air Asia access to India's growing market. The airline currently flies to four South Indian cities.

 For Tata Sons, this is not the first attempt to enter the industry. The company had planned to start a joint venture carrier with Singapore airlines about two decades ago, but the deal failed to take off due to various reasons.

Indian aviation sector has struggled in the recent years as high operational expenditure and regulatory issues. But according to a recent report from FICCI-PwC, Indian civil aviation sector could become one of the three major markets in the world by 2020.

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