Tata SIA is the third foreign direct-investment (FDI) proposal that the Indian government has received since the policy change in 2012. Malaysian carrier AirAsia, SIA's arch rival, was the first airline group to take advantage of the policy, forging an agreement with the same Tata Group to launch a joint venture low-cost affiliate, AirAsia India. Then came Abu Dhabi-based Etihad Airways' purchase of a 24% stake in Jet Airways, India's leading full-service private carrier.
“The easing of foreign investment norms last year has been a catalyst for long-term reforms in Indian aviation,” says Amber Dubey, aerospace head at KPMG. “Previously, foreign investors, but not airlines, were allowed to hold up to a 49 percent stake in local airlines. The willingness of foreign air carriers to do business in India is a harbinger of interesting times to come.”
International airline groups such as Emirates, Qatar Airways, All Nippon Airways and Turkish Airlines have recently expressed interest in investing in an Indian carrier, if a good opportunity arises. Similarly, Indian low-cost carriers SpiceJet and GoAir are looking for foreign partners.
However, most Indian air operators are in crisis and direly need infusions of capital.
Sanat Kaul, chairman of the New Delhi-based International Foundation of Aviation, Aerospace and Defense, says that “foreign airlines will bring more capital into the country and improve the balance sheets of the Indian airlines.”
SIA, through a 49% stake in the proposed carrier, will have a major presence in a strategically important market. “The time is right to jointly bring consumers a fresh new option for full-service air travel. We are confident that the joint-venture airline will help stimulate market demand and provide economic benefit to India,” Phong says.
While the country's low-cost airline segment is growing fast, the collapse of Kingfisher Airlines created a void in the full-service segment. Even the leading private carrier, Jet Airways, is focusing more on its full-service offering. “The country now has only two full-service domestic airlines—national carrier Air India and Jet Airways. The new airline may be in a position to establish a competitive, hybrid business model that offers a high-quality product with a lower cost base,” says Dubey.
With few additional details available, analysts say it is likely that the new full-service airline will focus more on west-bound travel and try to take on airlines from the Middle East, which are already in expansion mode.
“Our assessment is that SIA is not coming just for the domestic routes. Its biggest strength lies in intercontinental, long-haul flights,” Dubey notes. “Nearly 70 percent of global traffic from India is west-bound—to the Middle East, Africa, European Unions and the Americas. Once SIA comes in, they can compete on those routes on the Indian quota of the bilateral agreements. It can also operate direct flights to the Far East and Australia from India.”