The government Thursday approved the setting up of a joint venture (JV) airline between industrial conglomerate Tata Sons and Singapore Airlines with an investment of about $100 million.
The two companies' plan for the launch of a new full-service private carrier based in New Delhi was approved by the Foreign Investment Promotion Board (FIPB), which met in the national capital.
Economic Affairs Secretary Arvind Mayaram told reporters that the deal has been cleared.
This is the third instance in which the FIPB has cleared foreign capital's entry into domestic carriers after the government last year allowed investment up to 49 percent.
Earlier, FIPB had approved the applications of Jet-Etihad and Tata-AirAsia.
This is the second such airline venture which the Tata Sons entered into this year. Its venture with Malaysian budget passenger carrier AirAsia is in the process of procuring operators licence from the Directorate General of Civil Aviation (DGCA).
The budget airline venture of the Tatas will be based out of Chennai. However, the proposed airline is facing some legal challenges.
On the latest approval by the FIPB, a Tata Sons spokesperson said the company was yet to get any formal intimation from the FIPB.
"We are yet to hear from FIPB. However, we are delighted with the reports of clearance given to the proposed airline by the FIPB," the spokesperson told IANS.
Both the companies last month signed a memorandum of understanding (MoU) to launch an airline by investing $100 million and sought the FIPB's approval.
â€œThis sends very positive signals to the global investor community," said Amber Dubey, partner and head, aerospace and defence at global consultancy KPMG.
"If they play it well, Tata-SIA has the potential to be among the top three airlines in India by 2015."
The majority stake in the proposed new airline will be held by the Tata Sons, who will own 51 percent, while the rest 49 percent will be with Singapore Airlines.
Initially, the board of directors of the proposed airline will have three members, including two nominated by Tata Sons and one nominated by Singapore Airlines.
Interestingly, this is the third time the two business groups are trying to start an airline in India. In mid-1990s, Tatas and Singapore Airlines tried to launch a joint airline.
Then again in 2000-2001, both the parties made another bid to take a stake in the erstwhile Indian Airlines. However, that deal never came through due to stringent foreign investment norms that existed at that time.
Informatively, India's first passenger carrier was Tata Airlines, which took flight in 1932. In 1953, it was nationalised and renamed Air India.
Currently, there are six scheduled domestic airlines in the country -- Air India, Jet Airways, JetLite, SpiceJet, IndiGo and GoAir. The operating licence of Kingfisher Airlines was suspended last year.
Some salient features:
-- Tatas and Singapore Airlines to start new full service carrier
-- The new airline to be based in New Delhi
-- Tatas to hold 51 percent, while Singapore Airlines to have a 49 percent stake
-- Both the parties to invest $100 million in to the proposed airline
-- Now the management has to satisfy Civil Aviation Ministry norms
-- This will be the second proposed airline venture of Tata Sons this year
-- Tata Sons has also applied with AirAsia to start a budget airline