Tatas and Singapore Airlines to form new airline in India

by Devesh Agarwal

Taking advantage of India's recent liberalisation of the aviation sector, the country's most famous conglomerate, Tata Sons, and flag carrier Singapore Airlines (SIA) have signed a memorandum of understanding and applied for Foreign Investment Promotion Board (FIPB) approval to establish a new airline in India, thus adding a well financed full service carrier with strong customer service roots.

The airline will be based in New Delhi and will operate under the full-service model. Tata Sons will own 51 percent and Singapore Airlines will own 49 percent.

The announcement brings full circle, a partnership first commenced by the two companies back in 1995, when they jointly attempted to start an airline in India. In 2000, the two jointly bid for a stake in Air India. At the time the bids were thwarted by a sudden shift in policy, some say politically pushed through by a then fledgling Jet Airways, preventing investment in Indian carriers by a foreign airline.

The initial board will have three members, two nominated by Tata Sons and one nominated by Singapore Airlines. The chairman will be Prasad Menon, nominated by Tata Sons. Mukand Rajan, member of the group executive council of Tata Sons will be the ther director while Mak Swee Wah, executive vice-president (commercial) will represent Singapore Airlines.

Menon said

“It is Tata Sons’ evaluation that civil aviation in India offers sustainable growth potential. We now have the opportunity to launch a world-class, full-service airline in India. We are delighted that we are partnering in this endeavour with the world-renowned Singapore Airlines,”

Singapore Airlines CEO, Goh Choon Phong, added

“We have always been a strong believer in the growth potential of India’s aviation sector and are excited about the opportunity to partner Tata Sons in contributing to the future expansion of the market.” “Tata Sons is one of the most established and respected names in India. With the recent liberalisation, the time is right to jointly bring consumers a fresh new option for full-service air travel. We are confident the joint venture airline will help to stimulate market demand and provide economic benefits to India.”

Details of the airline’s branding, management team and products and services will be announced in due course.

The Tatas are also partnering with Tony Fernandes promoted Air Asia which is well under-way in establishing a new low cost carrier in India, AirAsia India.

Curiously, today's announcement comes just a day after the Delhi high court admitted a petition seeking quashing of the start clearances granted to AirAsia India. The petitioner, Subramanian Swamy, claims the recently liberalised FDI policy allowing investments by foreign airlines in Indian airlines, allows for investments in existing airlines and not fresh start-ups such as AirAsia India.

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Airbus achieves 8,000 aircraft delivered milestone

Photo courtesy Airbus S.A.S. Used under fair use.

Earlier this month, Airbus achieved a historic milestone when it delivered its 8,000th aircraft – an A320 for the Indonesian wing of AirAsia.

Over the years, Airbus S.A.S. has grown from a single aircraft model company to an aircraft manufacturer, offering aircraft covering every segment of the market from 100 to 500+ seats.

Tan Sri Tony Fernandes, Group Chief Executive Officer of AirAsia said

“AirAsia has a long-standing, special relationship with Airbus. This is a very special moment for all of us. The people behind Airbus and their commitment in delivering the best product are key to our fruitful relationship, and we are extremely proud to have the 8,000th Airbus as a member of our fleet. It’s the same pioneering, forward-looking mindset and a lot of hard work that have brought both AirAsia and Airbus to their respective leading positions today,” “The excellent fuel efficiency and economics of Airbus aircraft are key contributors to AirAsia’s success – we are confident that these modern aircraft will enable us to continue our ambitious growth plans.”

Fabrice Brégier, Airbus President and CEO said

“It’s particularly fitting that our 8,000th delivery goes to AirAsia - one of the world’s fastest growing airlines,” “In an increasingly challenging and diverse worldwide economic context, we are more than ever focused on delivering real value to our customers. We will achieve this by continuing to innovate, together with our customers, in all fields of the business to stay ahead of the game and offer the most efficient products and services.”

AirAsia Group is the largest low-cost airline in Asia is the largest customer for the A320 Family, having ordered a total of 475 aircraft, comprising 264 A320neo and 211 A320ceo. Meanwhile, Airbus widebody aircraft are the choice of the group’s long haul affiliate AirAsia X, which has ordered a total of 26 A330-300s and ten A350 XWBs. A total of 141 Airbus aircraft are flying today in AirAsia’s colours out of its 16 bases in the region, which include Bangkok, Kuala Lumpur and Jakarta.

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Vested interests shaping government policy helped AirAsia partner Tatas too

by Devesh Agarwal

Image courtesy Wikipedia

Aviation insiders have known for many years what AirAsia boss Tony Fernandes dared publicly state the day before yesterday, after his meeting with civil aviation minister Ajit Singh. Vested interests have shaped, nay, distorted Indian civil aviation policy.

One of the more shameful rules of Indian civil aviation is the policy of allowing Indian carriers to operate international flights only after they have been in operation for five years, and have a fleet of at least 20 aircraft.

The worst aspect of this rule is that it applies only to Indian carriers. So while even newly formed airlines from our neighbours like Mihin Lanka, flyDubai, etc., could fly to India, a perfectly capable IndiGo or SpiceJet were forced to watch their competitors establish themselves, while they themselves had to sit idly by. Even today GoAir is unable to operate international flights since its fleet is smaller than the mandated 20 aircraft, forcing the airline to lobby and seek an exemption from the rule.

Image © Devesh Agarwal. All rights reserved.

The blind ambition to operate international flights before it completed the five year requirement, was one of the driving reasons for Vijay Mallya promoted Kingfisher Airline's disastrous acquisition of the loss-laden Air Deccan, which is now acknowledged as a major reason for the ultimate demise of the liquor baron's airline.

We completely agree with Fernandes that this bizarre rule has held back Indian airlines while other airlines in the region have formed and grown to become large stable businesses, thus causing a loss to the nation.

Fernandes appeared to confirm insider information when he used the name "Naresh", most likely referring to Naresh Goyal, the politically super-connected boss of Jet Airways, who was the "vested interest" behind this bizarre policy decision.

Fernandes though, should remember history and use caution when blaming "vested interests" for distorting government policy. Back in 2006, his partners in AirAsia India, the Tatas, actively lobbied the finance departing to apply a different yard-stick from the then national auto policy, and made their fledgling Indica car qualify as a "small car" and obtain lower excise duty benefits which it was otherwise not be entitled to, while its competitors would.

A 2006 report explains

While the Auto Policy defines a small car as being up to 3.8-metre long and the 6-digit excise notification in the official tariff book places a cap of 1,000 cc on the engine capacity for a car to qualify as 'small', the Budget made cars up to 4 metre in length and having an engine capacity of 1,200 cc (petrol) and 1500 cc (diesel) eligible for the lower, 16% excise slab.

This means, had the finance minister stuck to the existing definition, petrol models such as Hyundai Santro and Maruti WagonR would not have become eligible for lower excise. Under this definition, the upcoming diesel variants of Swift and Getz will also become eligible for lower excise since the engine capacity cap for diesel versions has been placed at 1,500 cc. But, just a few weeks after the budget was passed, two major automobile companies have begun lobbying for extending these concessions further.

Officials confirmed that two companies, including the Ratan Tata-led Tata Motors, have sought further relaxation.

Fernandes' outburst is understandably,  also vested. After all, he is responsible to the shareholders of his business for delivering results. One way for his new venture AirAsia India to quickly grow, would be to operate internationally.

Today AirAsia cannot carry passengers all the way from south east Asia to the middle-east on its narrow body A320s, since the distance it too great. At the same time. some of the routes would not have enough traffic to fill the wide-body A330s of AirAsia X. But if AirAsia India flies overseas, it can be fed by its sisters AirAsia, and Thai AirAsia who would bring passengers to the Indian hubs and transfer them on their Indian sister along with Indian passengers for the onward journey to the middle-east.

Is this a case of the pot calling the kettle black? Or is Tony Fernandes genuinely interested in universal change to fair play rules? Share your thoughts via a comment.

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AirAsia Announces Termination of AirAsia Japan Joint Venture with All Nippon Airways

In a long expected move, Malaysian low cost carrier, AirAsia today announced its decision to terminate its participation in the joint venture with ANA Holdings Inc. under the AirAsia Japan brand with the signing of a termination agreement.

The joint venture, created two years ago under the name AirAsia Japan faced many challenges since its launch. Issues stemmed from a fundamental difference of opinion between its shareholders on how the business should be managed from cost management to where the domestic business operations should be based.

AirAsia Berhad through AirAsia Investment Ltd. had subscribed 25,120 voting shares and 23,880 non-voting shares at JPY 50,000 per share, which represented forty-nine percent (49%) of the paid-up share capital in AirAsia Japan.

The termination comprises an acquisition of AirAsia’s entire shareholding in AirAsia Japan by ANA Holdings Inc. for JPY 2,450,000,000 (approximately US$ 25.17 million). The termination also involves the return of all AirAsia aircraft leased to AirAsia Japan by November 1, 2013 and the payment of all monies accrued from the leasing of the aircraft.

Under the termination, AirAsia Japan will also settle all outstanding invoices due to AirAsia accrued from the commencement of operations. AirAsia Japan will unwind the use of the AirAsia brand in its operations, including the name of AirAsia Japan itself by November 1st 2013. Operations of AirAsia Japan flights up to October 31st 2013 will continue as planned.

Following the transfer of shares and payment of the purchase price, the Shareholders Agreement, the Brand License Agreement and other commercial contracts between the parties will be terminated immediately.

On the termination, AirAsia Group CEO Tony Fernandes said,

“I have great respect for ANA as the leading legacy airline in Japan but it is time for us to part ways and focus our attention on what we do best, which is running a true LCC. Despite the cost issues, the AirAsia brand has resonated with Japanese customers and the trend we see for July and August is very strong for all of Japan. I remain positive on the Japanese market and believe there is tremendous opportunity for a LCC to succeed, as proven by the tremendous success AirAsia X has seen. We have not given up on the dream of changing air travel in Japan and look forward to returning to the market.”

Operations of AirAsia X, the long haul low fare affiliate of AirAsia Group will not be interrupted as a part of this termination. AirAsia X will continue its operations into Japan including Kuala Lumpur to both Tokyo (Haneda) and Osaka (Kansai).

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Mittu Chandilya named as CEO for AirAsia India

Mittu Chandilya has been appointed as the Chief Executive Officer (CEO) of AirAsia India (Private) Limited. Mittu will assume office effective the 1st of June 2013.

As per Mr. Chandilya's LinkedIn profile his last position was Head of Services Practices for APAC, Egon Zehnder International at Singapore. His specialisation is in senior executive search and succession planning. In his words

[Mittu Chandilya] Was a core member of the Egon Zehnder focused on advisory leadership in our Aviation, Travel & Hospitality, Industrial, Resources, CleanTech and the Energy practices. Advising clients on C-level executive searches, strategic organizational Design and challenges, the recruitment of non-executive board members and CEO succession planning. Specialized in advisory and search activities in C-level succession planning, Regional Senior Leadership roles in MNCs, Large- Cap Listed Organizations and Family owned enterprises

One has to study in detail what he brings to AirAsia India. Group Chief Executive Officer of AirAsia, Tony Fernandes said,

“He is an outstanding young man with great entrepreneurial skills. He is very passionate about the LCC business and possesses the crucial understanding on how our business model works. He came from a highly competitive industry and experienced different business temperaments by working in many parts of the world, so he’s perfect for the ever-volatile aviation business. India is an important market for us, and a CEO of Mittu’s stature and business acumen would definitely help us to attain significant market share and achieve rapid growth in India.”

In accepting the appointment as CEO of AirAsia India, Mittu Chandilya said,

“I am a native of Chennai, and I am excited about returning to India to revolutionize the air travel industry here. I am looking forward to being part of the dynamic AirAsia family, and most importantly, to bring a whole new meaning to the word ‘flying’ to consumers in India.”

Mittu grew up in India, Africa and the USA and has a Bachelor of Science degree in Marketing, Management and Business Information Systems from Lehigh University, Pennsylvania, USA, an MBA degrees from INSEAD, France/Singapore and from Tsinghua University, Beijing, China.

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AirAsia, Tatas and Amit Bhatia seek approval to start airline in India. Is SpiceJet the target?

by Devesh Agarwal

Malaysian low cost carrier AirAsia Berhad (Ltd.) through its investment arm, AirAsia Investment Ltd. (AAIL) has submitted an application to the Indian Foreign Investment Promotion Board (FIPB) seeking approval for AAIL to invest 49% into a proposed Indian joint venture together with Tata Sons Limited and Mr. Arun Bhatia of Telestra Tradeplace Pvt. Ltd. The expected holding in the JV is AirAsia 49%, Tatas 30%, and Arun Bhatia 21%.

Photo: Devesh Agarwal

This move comes amidst the backdrop of the September 2012 decision by the Government of India to open up the aviation sector to Foreign Direct Investment from foreign carriers.

AirAsia is one of the most successful low cost carriers in the world, and has created regional AirAsia airlines in Thailand, Indonesia, Philippines, and Japan in similar joint ventures like the one proposed for India.

The Tatas are a $100 billion conglomerate highly respected for their business values, and who used to own, then operate Air India prior to the government taking it over in the 1970s. The Tatas used to own close to 6% in Indian LCC SpiceJet Ltd., owned by the political heavyweight Marans who are related to DMK supremo Karunanidhi of Tamil Nadu. However, the Tatas claim their investment in SpiceJet is purely financial on with the two rounds of equity dilution at the airline, their stake is now down to less than 0.5%.

Mr. Arun Bhatia's son Amit Bhatia, is the son-in-law of one the richest men in the world, Mr. L.N. Mittal and serves serves on the Board of Directors at Queens Park Rangers Football Club in the United Kingdom alongside Tony Fernandes, the founder of AirAsia.

Subject to FIPB approval, the proposed joint venture company will make an application to Indian aviation regulators for the Air Operators Permit. The parties have signed a Memorandum of Agreement that details high-level terms with regards to the proposed partnership.

The airline, if formed, will be based out of Chennai, which will allow domestic connectivity to AirAsia's international operations.

This foray will mark a return of the Tatas to the airline and airport sector after almost 25 years. In the 1980s and 1990s, the Tatas had proposed a collaboration with Singapore Airlines to operate a domestic carrier and also to take over Air India. The Tatas had also collaborated with Changi Airport to develop the greenfield airport at Bangalore, which is now BIA. All efforts were thwarted by political opposition.

Our analysis

We are not sure how well this proposal will be received. India's civil aviation minister is on record with the Business Standard newspaper

“We are not giving licences for greenfield airlines. As of now, FDI (foreign direct investment) in aviation can come only through existing airlines."

Based on this premise, for the past few months, Jet Airways has been negotiating with Abu Dhabi based Etihad to sell a 24% stake in Jet for about $300 million. The Chairman of Etihad Sheikh Hamed bin Zayed al-Nahyan has already delayed the deal citing concerns on policy flip-flops. An approval to AirAsia will prove the Sheikh's point, and almost certainly scuttle the FDI initiative, announced by the government last year, which is essentially meant for rescuing India's debt-laden airlines and the banks who have already lent massive amounts to them.

We expect there will be strong, if not, insurmountable opposition especially with regards to existing Indian carriers like Jet Airways, SpiceJet and IndiGo, each of whom should not be discounted for their strong political connections.

So knowing all of this, why has this JV application been submitted? What do the Tatas, Bhatias, and Tony Fernandes know, that is not apparent?

Photo: Devesh Agarwal

If one was to go in to a conspiracy theory mode, the common point is SpiceJet.

From one side, the Tatas own a stake in the the airline. From the other side, Anthony Francis "Tony" Fernandes is in the very top Malaysian business tycoons circle, along with Mr. Ananda Krishnan, the Chairman of Maxis and Astro, both of which have been linked to the Maran brothers Dayanidhi and Kalanithi respectively, and Kalanithi Maran is the owner of SpiceJet, which has a need of funds for expansion.

Quoting from our Indian Aviation Review from earlier this year

Q400 operation is certainly a strong performer in SpiceJet’s tepid overall finances. The full order of 15 Q400s is now complete, and while SpiceJet has options to purchase 15 more from Bombardier, unfortunately it cannot find financing for the next 15 deliveries, which it desperately needs to expand the regional operation

May be Mr. Maran is wanting to exit the airline business?

What are your thoughts? Share a comment. Share this article on Facebook and Twitter. Start a discussion.

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AirAsia shifts Bangkok operations from Suvarnabhumi to Don Mueang airports

In a move that will lose it international passengers arriving in to Thailand, AirAsia, has shifted its operations at Bangkok from Suvarnabhumi International Airport to the old Don Mueang International Airport today.

AirAsia’s Group Chief Executive Officer, Tony Fernandes commented

“I am extremely happy with our move to Don Mueang International Airport, which is probably Thailand’s biggest and first low cost airport. Operating out of low cost airports has always been something that we have been fighting long and hard for.” “Less congestion and shorter taxi time will result in less fuel consumption and less delays.”

Photo: AirAsia

Mr. Tassapon Bijleveld, CEO of Thai AirAsia, revealed that on the night of 30 September, AirAsia began transferring its fleet of 22 Airbus A320s from Suvarnabhumi International Airport to Don Mueang International Airport over a period of eight hours; starting from 20:00 up to 04:00. All other equipment, including baggage carts and passenger steps were transferred within 24 hours.

AirAsia is hoping to benefit from a less congested terminal at the new airport, as well as its proximity to central Bangkok. While this will give the carrier an edge for Bangkok based passengers, it will lose a lucrative market of international passengers who arrive and depart at Suvarnabhumi airport and transit to and from the many cities within Thailand and other ASEAN destinations.

AirAsia flights with flight codes FD, AK and QZ will operate over 160 flights per day from Don Mueang, to over 77 destinations across Thailand, Asia and Australia. AirAsia is expecting to carry eight million passengers in 2012 to and from Bangkok.

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