The approval has come close to six months after the government last year liberalised the country’s foreign direct investment (FDI) policy, after a long debate, allowing foreign airline companies to hold up to 49 per cent stake in Indian ones.
Some news reports had yesterday suggested the proposal could face hurdles from the civil aviation ministry after minister Ajit Singh had said: “The commerce ministry should change the FDI guidelines to bring more clarity on whether a new airline JV comes under its rules.” The doubt was on whether these norms applied only on foreign airlines investing in existing Indian ones or also on those setting up JVs for greenfield operations. However, Singh said he supported the proposal in principle.
A senior government official who attended the meeting today said: “The proposal has been cleared. It’s in line with the policy, which allows up to 49 per cent FDI.”
AirAsia promoter Tony Fernandes tweeted: “Exciting. Thank you all... The good always wins. People and companies with good intentions to create jobs and make life of an average man better will always win.”
AirAsia is to hold 49 per cent stake in the proposed JV, while Tata Sons will hold 30 per cent and Delhi-based Telestra Tradeplace’s Arun Bhatia 21 per cent. However, operational control of the airline would be with AirAsia; Tata has made it clear it will only be an investor.
The next big challenge for the JV would be getting a no-objection certificate from the civil aviation ministry and an air operator’s permit from the Directorate General of Civil Aviation (DGCA). These could take up to six months.
A senior ministry official today said: “AirAsia has not applied for a permit. However, we have concerns on issuing a national permit to a new airline. We would prefer it taking a regional permit. If such airlines start flying on trunk routes, there will be overcapacity on those routes.”
The application of G R Gopinath for a national permit is still pending with the ministry. Singh’s contention is that Gopinath’s airline should first fly regional (for which it has a licence) before it could be given permission to operate across the country and its licence could then be upgraded.
Fernandes has already made clear his intention of treading slow — starting operations in South and West India, rather than nationally from day one. He plans to begin with four-five aircraft, with Chennai as base and concentrate on Tier-II and III cities, instead of the metros where airport costs are too high.
Unlike in Malaysia, where it had the first-mover advantage, AirAsia will face a tough challenge from domestic LCCs, such as IndiGo, which controls nearly half the LCC market and is growing rapidly with new capacity. Also, it will not have the advantage of low ATF rates and airport charges, which account for 50 per cent of costs.
Besides, the foreign carrier has not been able to make a mark through its international operations in India. Experts, however, say its entry could lead to a fare war in the Indian market, as Fernandes has publicly said the fares of domestic LCCs are too high.