Thursday, February 21, 2013

AirAsia’s Indian dream takes flight

Petaling Jaya: Tan Sri Tony Fernandes' dream of launching AirAsia India is beginning to fall into place after AirAsia Bhd sealed an agreement with two influential partners, India's Tata Sons Ltd and Telestra Tradeplace Pvt Ltd.

Under the deal on Tuesday, AirAsia will hold a 49% stake in a joint venture to set up AirAsia India while the Indian parties will take up 51% (30% by Tata Sons, the promoter of Tata Group's key companies, and 21% by Telestra, owned by Arun Bhatia).

Bhatia's son Amit Bhatia is the steel magnate Lakshmi Mittal's son-in-law. Telestra is a unit of Hindustan Aerosystems Pvt Ltd, which makes and supplies precision components for the aerospace industry.

 The Tata Group is a 140-year-old institution that has investments across seven business sectors: materials, engineering, information technology and communications, energy, services, consumer products and chemicals.

Its chairman Ratan Tata is likely to take the same post at AirAsia India.
Fernandes, when contacted in London yesterday, said: “I have known Ratan Tata for some time now. We know each other from the car business and have had serious negotiations for about five months. Ratan Tata likes the air sector.

“It was Lakshmi Mittal who introduced me to Arun of Hindustan Aerosystems.''
Although Fernandes had been eyeing the Indian market for some time, the entry was only made possible after the Indian government eased foreign investment rules in September last year to allow foreign airlines to directly invest in local carriers.

After the move, Jet Airways (India) Ltd began discussions with Middle East carrier Etihad Airways for an investment.

AirAsia's investment in the joint venture was via AirAsia Investment Ltd, the airline said in a statement.

Yesterday morning, AirAsia Investment submitted an application to the Indian Foreign Investment Promotional Board (FIPB) to seek approval for its investment in India.

AirAsia said that subject to the FIPB approval, the proposed joint-venture company would make an application to the Indian aviation regulators for the Air Operators Permit. The parties have signed a memorandum of agreement that details high-level terms on the proposed partnership.

“Our next step is to get all the necessary approvals and we are targeting to launch AirAsia India some time in September,'' Fernandes said.

The airline will start with at least two A320 aircraft, expanding it to five in the short term. The aircraft will be sourced from AirAsia, which has placed a huge order with Airbus. Fernandes is looking at an initial investment of US$30mil (RM92.89mil) to set up the airline, which will be based in Chennai initially.

If the deal goes ahead as planned, it will be AirAsia's fifth hub outside Malaysia, following those in Thailand, Indonesia, the Philippines and Japan.

“We can now solidify our base, as we have moved from being a South-East Asian player into a truly low-cost airline in Asia with our Japan and India ventures. With India, we would have covered almost 80% of Asia,'' Fernandes said.

India is home to more than a billion people and experts expect over 300 million passenger departures by 2030. However, the Indian air sector is crippled by issues such as high costs, exorbitant taxes and insufficient infrastructure. Can AirAsia make it there then?

Fernandes seems unperturbed.

“We have been studying the Indian market for the past three years. We are not jumping into it. We have been working on it and working on the various issues plaguing airlines there, but we believe these are issues that we can deal with.

“There is also no true low-cost carrier in India, and given our low-cost base, branding, product offering, network and expertise, we can stimulate enough demand and make this venture successful,'' he added.
AirAsia currently flies from Kuala Lumpur to Chennai, Tiruchirappali, Kolkata, Kochi and Bangalore. Its sister airline, AirAsia X, suspended flights from Kuala Lumpur to Mumbai and New Delhi over a year ago because of high taxes imposed by the Indian authorities.

The Tata Group also owns nearly 6% in SpiceJet Ltd, India's second largest low-fare carrier. However, the group has reiterated that it is just a financial investor in the airline.

Article taken from TheStar

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