September 30, 2013
The decision of Singapore Airlines (SIA) to establish a joint-venture Indian carrier with the Tata Group signals that foreign carriers are still willing to invest in India. The move could be a sign that the worst is over for an industry plagued with losses—or it could just make matters worse.
After two previous failed attempts, Tata Sons Ltd. and SIA cobbled together an alliance in mid-September to enter the Indian aviation market with a proposal to invest $100 million in a carrier called Tata SIA Airlines. It will join a sector in which airlines are burdened by heavy debt and accumulated losses in the face of stiff competition, suppressed demand and extraordinarily high fuel costs, far above world market levels, besides other factors.
India's airline sector has seen the exit of Kingfisher Airlines, massive difficulties of Jet Airways, which is about to become a part of the growing Etihad Airways' so-called “equity alliance” and the never-ending story of mismanagement and losses at state-owned Air India.
But this is not stopping what is likely India's most famous brand from investing in aviation, nor is Singapore Airlines overly concerned. “We have always been a strong believer in the growth potential of India's aviation sector and are excited about the opportunity to partner with Tata Sons in contributing to the future expansion of the market,” says SIA CEO Goh Choon Phong.
One of the most intriguing aspects of the decision is that the two partners are not setting up another low-cost carrier. Tata SIA Airlines will be a full-service carrier, one of the few high-profile launches in that segment worldwide in recent years.
SIA made its first bid to launch a joint-venture airline in India with Tata in 1995. But Indian authorities then turned down the proposal after introducing a change in civil aviation policy that barred foreign carriers from holding stakes in domestic airlines. This restriction was lifted in 2012. In 2000, the two firms had abandoned a joint attempt to buy a 40% stake in Air India—founded in the 1930s by the Tata Group as Tata Airlines—after the government decided not to privatize the flag carrier.
The chairman of the joint venture, Tata Sons' Prasad Menon, is optimistic this time around. “Civil aviation in India offers sustainable growth potential. We now have the opportunity to launch a world-class, full-service airline in India,” he says.