The Foreign Investment Promotion Board (FIPB) today approved the proposal of AirAsia, the Malaysian budget carrier, to set up a new airline in India in partnership with Tata Sons and Telestra Tradeplace, a government statement said.
The nod marks the first entry of a foreign carrier into the domestic aviation sector after the government liberalized rules for foreign direct investment in the sector in September 2012. The revised policy allows foreign carriers to own up to a 49 per cent stake in Indian peers.
The Malaysian airline proposes to have operational control of the new venture -- AirAsia (India) Pvt. Ltd -- with a 49 per cent stake, while Tata Sons will be the minority investor with a 30 per cent stake and no operational role. The Tatas will be represented by two non-executive directors on the airline's board.
"We bring the expertise in running the airline like the Tatas' joint venture with Starbucks," AirAsia CEO Tony Fernandes had said earlier this month.
The third partner, Telestra Tradeplace, will hold a 21 per cent stake.
In an exclusive interview with NDTV Profit after announcing the venture, Mr Fernandes had described the tie-up as "a marriage made in heaven". "They (the Tatas) know the Indian economy well. They are in most parts of the economy. They have a fantastic reputation and are good partners to be with. They understand partnership very well and I have a good relationship with Ratan Tata and now the new CEO," he said.
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 should all approvals be in place. The partners will initially invest $30-50 million, or over Rs. 250 crore, in the venture. It will compete in the budget carrier space, a market currently dominated by IndiGo and SpiceJet. The AirAsia CEO had said his focus will be on the "1 million people that travel by train".
With inputs from Reuters