The country will soon have a new budget carrier with Finance Ministry clearing the investment proposal of Malaysia's AirAsia. AirAsia plans to enter India through a joint venture with Tata Group and Telestra Tradeplace. This will mark the return of Tatas to aviation sector. State-owned Air India had grown out of Tata Airlines, which began flights in 1932.
The Foreign Investment Promotion Board (FIPB), headed by DEA Secretary Arvind Mayaram, approved the proposal in a meeting on Wednesday.
“AirAsia's proposal has been cleared. It is as per the policy (which allows) up to 49 per cent FDI,” a senior government official said adding that the initial investment would be Rs 80 crore.
AirAsia would set up a 49:30:21 joint venture with the Tata Sons and Telestra Tradeplace of Indian investor Arun Bhatia to launch a new Indian airline. Tata Sons, the holding company of the $100 billion salt-to-software conglomerate, will hold 30 per cent in the joint venture but will not have any operating role in the airline.
However, soon after the announcement, the Civil Aviation Ministry has sought clarity on the FDI policy in the aviation sector on the grounds that it spoke of allowing such investment in an existing Indian carrier and not a new one.
“The Commerce Ministry should change the rules to bring about clarity. Overall, I don't see a problem in the AirAsia joint venture. Our Ministry will see of the joint venture adheres to the laid-down rules,” Civil Aviation Minister Ajit Singh said.
“There are some procedural problems.... The notification says (investment by a foreign airline in) an Indian carrier. So they (investor) have to follow the procedure because the Cabinet took a decision, following which the Commerce Ministry issued the notification,” he said.
The carrier will now have to approach the aviation regulator Directorate General of Civil Aviation (DGCA) for further clearances and a scheduled air operator's permit which allows an airline to undertake flying operations.
When the AirAsia joint venture applies to the Civil Aviation Ministry, the DGCA and other agencies would look into a variety of issues including the issuance of a No Objection Certificate (NOC) for launching of air operations and Scheduled Operator's Permit (SOP).
Before granting it the NOC and SOP, the Ministry would also have to see whether all procedures have been followed, including whether two-thirds of the Directors of the company's Board were Indians and the directors were security-cleared.
AirAsia is planning to start flying from this year-end with 3-4 planes. The proposed joint venture will operate from Chennai and will focus on providing domestic connectivity to Tier-II and Tier-III cities. The proposed airline would not fly on international routes any time soon as the current rules only allow those airlines to do so which have completed five years of domestic operations and have a minimum fleet of five aircraft.
AirAsia, through its operations based in Thailand and Malaysia, flies to Chennai, Bangalore, Kochi, Tiruchirappalli and Kolkata in addition to 20 countries.
This would be the first entry of a foreign carrier in the domestic aviation sector after the liberalisation of FDI policy in September last year. AirAsia's proposal has made rapid move in getting the clearance even as Etihad and Jet Airways continue to work towards finalising a deal for the Gulf carrier to invest in Jet.
AirAsia Group CEO Tony Fernandes was keen to kick off his airline in the country as early as May-June instead of his earlier plans towards the year-end. He has also said he has chosen the head for the airline company. “I have selected the CEO for AirAsia India. A very smart boy from the South, Madras (Chennai). An amazing CV. Will impress all...,” Fernandes tweeted without naming the person.