Civil aviation ministry tried to thwart AirAsia's India plans

 NEW DELHI: As Malaysian budget carrier AirAsia readies to spread wings in India announcing hiring plans on Wednesday, documents available with ET reveal that the civil aviation ministry had tried to thwart the foreign airline's India plans.

The aviation ministry had disapproved of AirAsia's India entry, arguing that the Indian promoters —
Tata Sons and Arun Bhatia — should have first set up an airline company, obtained a flying permit and then sold off 49% to the foreign partner, minutes of foreign investment proposal-clearing committee, reviewed by ET, reveal.

"The proposal is supported in principle, but the applicant should first set up the company, obtain licence from ministry of civil aviation and then divest to a foreign collaborator in order to follow the policy intent," the civil aviation ministry had argued on March 6 in the meeting of Foreign Investment Promotion Board (FIPB), which had taken up AirAsia's proposal for clearance. Interestingly, AirAsia India still hasn't approached the civil aviation ministry for a noobjection certificate (NOC), a prerequisite for getting a flying permit — though has shortlisted the name of an India CEO and will also hire cabin crew next week in Chennai.

The aviation ministry had also asked the commerce ministry to issue a clarification to the policy on aviation FDI, which would apply to "JVs to be incorporated". "This would be required not only for the policy in letter, but also in spirit. This was the Cabinet note, which elaborated the background for the policy amendment had clearly delineated that the amendment was aimed at infusing capital into existing cash-starved aviation companies," the aviation ministry had further argued.

Later on March 26, when the government gave the final nod to setting up AirAsia India in partnership with Tata Sons and Telestra Tradeplace's Arun Bhatia, Union civil aviation minister
Ajit Singh said that this three-way venture could face some procedural problems. "The Air Asia-Tata airline JV is facing procedural issues. We will support the joint venture," Singh said at a CII conference.

Singh has been pointing out at impending procedural issues for the JV ever since the proposal got
FIPB clearance on March 6, without clearly enlisting what they could be.

The minutes further reveal that the industry ministry or Department of Industrial Policy and Promotion (DIPP), shot down the aviation ministry's opposition saying that the policy allowing foreign carriers to buy 49% stake in
Indian airlines "did not refer only to the existing airlines" and that the "policy needed no clarification." "...the spirit of the FDI policy was to get fresh investment into the country," the DIPP secretary says, as recorded in the minutes.

Earlier, ET had reported that a host of bureaucratic hurdles could come in the way of AirAsia's flying plans as a miffed civil aviation ministry may cite the airline's losses on south-east Asian routes and lack of airport infrastructure in India to delay or even deny key permissions. Some of the country's leading airlines have also indicated their opposition to AirAsia's aircraft purchase programme, saying they could lobby with the ministry to scuttle the purchases if they are large in number.

AirAsia plans to scale up rapidly after it launches operations from its Chennai base with three or four A320s, a development that is being watched not only by budget airlines like IndiGo, but also by full-service carriers like
Air India, which were able to garner better yields after the grounding of Vijay Mallya-promoted Kingfisher AirlinesBSE -1.19 % since October. The airline, which will be based out of Chennai and will cater primarily to Tier-2 and Tier-3 cities, expects to begin operations by the fourth quarter of calendar year 2013 after all approvals are in place. The partners will initially invest $30-50 million, or over .`250 crore in the venture.

AirAsia CEO
Tony Fernandes had said his focus will be on the "1 million people that travel by train".