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AirAsia takes Tatas back to skies in three-way JV for budget airline

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SummaryAlmost 60 years after exiting the aviation business with the nationalisation of Air India, the Tata Group is entering the sector once again.

be a low-cost carrier. Sources said AirAsia would be putting in place an Indian management team to handle the operations of the Indian airline.

“The joint venture plans to operate from Chennai focussed on providing domestic Tier II/Tier III city connectivity to Indian travelers,” AirAsia said.

AirAsia's announcement comes after it had denied showing an interest in buying a stake in low-cost carrier SpiceJet. The airline's billionaire boss Tony Fernandes had visited India in late 2012. The low-cost carrier had been looking for the right partner to enter India even as it kept maintaining that market conditions were not right for it to make an investment.

“We have carefully evaluated developments in India over the last few years and strongly believe that the current environment is perfect to introduce AirAsia's low fares which stimulate travel and grow the market,” said Tony Fernandes in a statement.

AirAsia Berhad, which is listed on the Kuala Lampur stock exchange, reported a profit of 157 million Malaysian Ringit or Rs 275.66 crore on revenues of 1.2 billion Malaysian Ringit or Rs 2,161.80 crore for the fiscal 2012 third quarter ended September 30. The airline's fiscal year is the same as the calendar year.

AirAsia's cash reserves as of December 31 also stood at 2.2 Malaysian Ringit or Rs 3,842.90 crore.

If AirAsia manages to secure FIPB approval before Etihad and Jet Airways reach an agreement, it will be the first investment by a foreign carrier in India.

Civil aviation minister Ajit Singh welcomed the announcement stating, “We hope the FIPB approval comes soon.”

AirAsia has been on the lookout for right partners in India since the government allowed foreign airlines to hold 49% stake in Indian carriers.

“Securing the right local partner could resolve many of the challenges AirAsia has faced in serving India from its home markets,” CAPA said in a report in 2012 after the low-cost carrier pulled operations from New Delhi and Mumbai.

Consultants said following this announcement there could also be consolidation in the aviation industry.

“The Tata-AirAsia deal is in line with our estimate that the policy change will lead to equity deals in 2-3 existing airlines and 1-2 fresh start-ups,” said Amber Dubey, partner and head-aviation at global consultancy firm KPMG. “We may also see some consolidation in line with what's happening in the US and EU since clearly, India-with its low flier-base, regulatory challenges and high cost structure – cannot afford more than four strong national airlines.”

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