Tata, SIA incubated venture in April last year

Singapore Airlines first approached the Tatas, its old choice for a venture in India, and was aware of AirAsia negotiations

Singapore Airlines (SIA) and former Ratan Tata, former chairman of Tata Group, rekindled talks to set up a joint venture domestic air carrier way back in April-May last year, when the government announced it was planning to liberalise foreign direct investment rules in the aviation sector.

Sources in the know say SIA, being wooed by several Indian groups, made the first move by approaching the Tatas, its old choice for a joint venture. In 1995, now SIA Chairman Stephen Lee Ching Yen, close to Ratan Tata, as a manager in the airlines was closely involved in an aborted Tata-SIA venture for setting up a domestic airline.

The Tata Group was set to hold a 40 per cent stake in that proposed carrier. However, strong opposition from the country’s private airlines made the Union government ask the Tatas to bring down SIA’s share first to half and then to 40 per cent. Later, the government succumbed to  the opposing airlines and decided not to allow foreign investment in Indian airlines.

For the current venture, talks between SIA and the Tatas acquired steam only after September, when the government allowed foreign airlines to acquire up to 49 per cent equity in Indian airlines. Talks with AirAsia Chief Tony Fernandes also began simultaneously. Both SIA and AirAsia were aware of the Tatas’ negotiations with them.

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After Ratan Tata retired as the Group chairman in December, the SIA project was handled by Cyrus Mistry. Sources in the know say the Tatas always had the option of setting up an airline on their own but Ratan Tata was sceptical to start one without a well-established partner with international expertise.

The current Tata-SIA venture is the duo’s third attempt to take flight in the Indian skies. In 2001, the Tata Group had made another abortive attempt to pick up a 40 per cent stake in Air India with SIA as partner through a divestment process. But opposition to the deal forced SIA to back out.

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The Tatas will be the driving force in the new airline (announced on Thursday) with a 51 per cent stake, with SIA taking the rest. And, the two have made a commitment to the Foreign Investment Promotion Board to make an initial investment of $100 million. Tata Sons would fully participate in the management and operations of the airline.

The three-member board of the Tata-SIA venture will consist of two Tata nominees   Prasad Menon, director in Tata Industries, as chairman, and Mukand Rajan, member of the group executive council of Tata Sons. Mak Swee Wah, executive vice-president (commercial) of SIA, will represent the foreign carrier. The airline has decided to make Delhi the operational hub, because of its better infrastructure than the Mumbai airport, which also has huge capacity constraints.

The Tata Group has a long history of co-operation with Singapore. It runs a flight kitchen in a joint venture with Singapore Airport Terminal Services (TajSats) and has partnered with the Changi airport to explore airport development in the country.