Proposed SIA-Tata carrier 'could take off in Dec'

The new full-service carrier proposed by India's Tata conglomerate and Singapore Airlines could take off as early as December, ahead of the country's general election due next May. India's Civil Aviation Minister Ajit Singh is said to be keen to fast-track the US$100 million (S$125 million) start-up during the remaining tenure of the Congress-led government, which is pushing for foreign participation in various sectors.

He is also said to be keen to remove a rule requiring an airline to put in five years of domestic operations before it is allowed to fly internationally.

Experts believe that the government will roll out the red carpet for the venture, which will be 51 per cent owned by Tata Sons and 49 per cent by SIA. It is the two companies' third attempt in two decades to enter the sector.

"They will fast-track it and do it before the election," said aviation expert Jitendra Bhargava, a former executive director of state-owned Air India.

"AirAsia took seven months, but some say SIA can fly in 3-1/2 months," he added, referring to Tata's other tie-up with AirAsia to set up an Indian budget airline. "India needs a major carrier with deep pockets." From October last year, foreign airlines have been allowed to take a stake of up to 49 per cent in local carriers, as part of the government's drive to attract overseas investments.

This has resulted in the Tata-AirAsia tie-up early this year and also Etihad Airways' bid for a 24 per cent stake in Jet Airways.

The proposed full-service airline is awaiting approval from India's Foreign Investment Promotion Board in the first of many regulatory hurdles, which include getting a no-objection certificate and a flying permit from the Aviation Ministry.

Experts believe that the tie-up would bring stability to India's embattled aviation sector that has seen the collapse of domestic low-budget carrier Kingfisher last October, after it defaulted on loans worth US$1.4 billion.

"This will be a game changer. (The tie-up) will bring in new innovation (and) rationalise prices," said Mr Rajan Mehra, former India head of Qatar Airways and managing director of United States-based Universal Weather and Aviation. "Overall, it's good for the consumer and good for the market."

Still, India's aviation industry presents a challenging environment. Local airlines are struggling with high fuel costs, which make up 50 per cent of operating expenses, high airport taxes and low ticket pricing. The collective debt of India's commercial airlines last year was US$20 billion.

"India is a price-sensitive market. Costs are high. Kingfisher provided value-added services like free meals, yet it could not get people to pay a premium for them. This clearly indicates that full services can be tough if costs are not kept in check," said Mr Bhargava. The market share of full-service carriers fell from 58 per cent three years ago to 35 per cent, forcing Jet Airways and Air India - the country's

two main airlines - to slash air ticket prices to levels not that much higher than those of low-cost carriers. A spokesman for Tata Sons, sounding an optimistic note, said there is enough room in the Indian market for another full-service airline. Said Mr Rajan: "Tata Sons is not known to make impulsive decisions... SIA is a global name. If the two decide that this is the right time for a full-service carrier, they must have done their homework."

gnirmala@sph.com.sg


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