Tata set to fly again, may face regulatory hurdle though

Cyrus Mistry is giving wings to Ratan Tatas long standing but unrealised dream. More than a decade after the Tatas and Singapore Airline gave up on their plans to fly into India's skies, the two have inked a memorandum of understanding (MoU) to launch a new full service airline with initial capital of a USD 100 million. The Tatas will hold 51 percent and Singapore Airlines will get 49 percent.

But the deal may face regulatory turbulence as Tatas also hold 30 percent in a joint venture (JV) with Air Asia India, reports CNBC-TV18’s Ronojoy Banerjee and Animesh Das. A new full service airline is preparing to land at Delhi, piloted by the Tatas and Singapore Airlines. Here are the details: - Tata Sons and Singapore Airlines have signed a MOU and applied for Foreign Investment Promotion Board (FIPB) approval to establish a new airline in India.

- 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 perecnt.

- The initial Board will have three members, two nominated by Tata Sons and one nominated by Singapore Airlines.

The announcemnt has met with a positive response with analysts saying the government’s reform process is bearing fruit Amber Dubey, Hd - Aviation, KPMG says, “Through this JV now, they can capture the West-bound routes going from India. It is also good for Delhi Airport, because all along people have been saying it lost the hub. It brings focus back on Delhi as a hub, because some of the traffic could actually be coming from Singapore to Delhi and from Delhi it gets on those long haul flights to Europe and US. Overall, I think it is fantastic.’ But lets not forget that last year, Tata Sons had signed a JV with Tony Fernandes' Air Asia to launch Air Asia India one more low-cost carrier in India's crowded aviation space. While Air Asia at its end has so far not made any comments on Tata's other airline foray, sources tell us that talks between the Tata's and Singapore Airlines gained momentum after the AirAsia India plan got FIPB approval. Insiders tell us that while "conceptually" there is no conflict of interest there are several regulatory unknowns. While the Tata group maintains it is a financial investor in AirAsia India, it will be interesting to see if this passes the government's muster. The chairman of AirAsia India is Tata Sons veteran S Ramadorai. According to civil aviation minister Ajit Singh, “Aviation rules do not specify this, one who own shares owns it and rest is upto the ministry of corporate affairs (MCA) and Securities and Exchange Board of India (Sebi) But considering the Jet-Etihad deal is still stuck on the runway due top regulatory hurdles and Air Asia India finds itself fighting courtroom battles, analysts say the take-off might not be smooth for the Tata-Singapore airlines JV as well. Kapil Kaul, CEO - South Asia, CAPA says, “The government would need to address both these two issues in a manner which is appropriate. As far as regulatory uncertainty is concerned, there is no denying the fact that there is no clarity whether they will get a licence or not. Regulatory uncertainty that exists in the current distorted environment is a reality and I think that every global player who wants to enter India is confronting that.”

Unlike the Air Asia announcement that came a little over six months back, when the Tata's said that they were merely financial investors in the newer alliance, this time however it is a different story entirely. With the Tata's holding a majority 51 percent stake in the proposed in new airline but as civil aviation minister Ajit Singh said soon after the announcement that the law currently is silent whether a company can have stakes in two different airlines - something he says that either Sebi or the corporate affairs ministry would have to work out.