Tata Sons, Singapore Airlines not to vie with each other in full-service segment

Written by Ashish Sinha | Debabrata Das | New Delhi | Updated: Oct 18 2013, 16:18pm hrs
Singapore AirlinesTata-Singapore Airlines proposal will be taken up by the Foreign Investment Promotion Board on October 24.
Tata Sons and Singapore Airlines, who plan to start a new full-service airline in India, will not compete against each other only in the full-service segment of the airline business. The specification in the non-compete clause of their MoU for formation of the JV company by Tata and SIA allows for Tata Sons to operate a low-cost airline in partnership with Malaysian budget carrier AirAsia.

The parties agree that except as permitted under a definitive agreement, both parties as long as they are partners in the JV company shall not compete with the JV company with regard to the business of domestic and international full-service passenger airlines, a copy of the MoU reviewed by FE stated.

After Tata Sons made a surprise announcement on September 19 about its intentions to launch a full-service airline with SIA, consultants raised questions on conflict of interest since the $100-billion conglomerate had already entered into a partnership with AirAsia for a low-cost airline. Many people in the industry also hinted that the Tata-AirAsia partnership was in trouble.

However, after AirAsia Indias first board meeting on September 28, most of the fears were put to rest with AirAsias Group CEO Tony Fernandes stating that he has no problems with the Tata-SIA partnership.

Apart from the non-compete clause, the MoU reveals that Tata-SIA have also agreed to a lock-in period of five years for their investments in the Indian JV, which will be called Tata SIA Airlines.

Further, in the first 180 days after formation of the JV, officials from both Tata Sons and SIA have been barred to consult or enter into any formal or informal discussions for investments into any other full service passenger airline in the country. Tata Sons, AirAsia and Arun Bhatia also had a similar lock-in period for their tripartite JV, AirAsia India.

Tata-SIA intend to set up the company with an initial investment of $100 million. SIA will initially bring in $49 million of investment. In the JV company, Tata Sons will hold 51% stake while SIA will hold the remaining 49%. Initially, the company will have three board members, two nominated by Tata Sons and one by SIA. This will be increased to six in due course of time with four members being nominated by Tata Sons and two by SIA.

Apart from the board members, the Tata-SIA will be managed by a CEO who wont be part of the board.

The Tata-SIA proposal was supposed to be taken up by the Foreign Investment Promotion Board on October 18. However, the FIPB meeting has been deferred till October 24.