Tata-Singapore JV unlikely to face any hurdle: Ajay Dua

Ajay Dua, former DIPP Secretary believes Tatas are unlikely to face any hurdle in its new joint venture with the Singapore airlines as they fulfill the FEMA requirement of 51 percent by the Indian company and 49 percent by the foreign entity.

According to him, Tata Sons also comply with the Aircraft Act where the airline needs to operate in India as majority of equity (51 percent) would remain with the Tatas and they would have a greater number of directors than Singapore Airlines would on its board including the chairman being an Indian nominated by the Tatas. Below is the verbatim transcript of Ajay Dua’s interview on CNBC-TV18 Q: The last attempt that Tata's along with Singapore Airline made to foray into the Indian aviation market was in 2001. Three aborted attempts altogether to enter the aviation market and they are back again now seeking regulatory approval. Do you believe there is likely to be any challenge here? A: I don’t think so. As long as they are meeting the requirement of foreign exchange management act (FEMA) that means the foreign direct investment (FDI) regulations, their proposals would go through. Prima facie what has come to light so far is that Tata's would hold 51 percent and the remaining 49 percent would be held by Singapore Airlines which is what the current FEMA dispensation allows, that up to 49 percent can be held by a foreign party in a domestic carrier. So to that extent, they are in conformity with the FEMA regulations. Also, with respect to the other law which is called the Aircraft Act which also all airlines need to comply with to operate in India. The ownership and control of the domestic airline must vest in domestic hands. To that extent as well, prima facie it does look that there would be compliance of that law as well because 51 equity would remain with the Tata's and they would have a greater number of directors than Singapore Airlines would on its board including the chairman being an Indian nominated by the Tata's. Q: Tatas hold 30 percent in another aviation joint venture that is AirAsia India. The fact that there is no explicit guideline in the aviation law which does not allow for multiplicity in partners, do you believe there could be issue on the fact that the Tatas will hold 30 percent in AirAsia India and have another Greenfield airline as well? A: I do not think there should be any problem on that front either. The law does not prohibit an investor to be present in more than one airline. It only talks of a particular domestic airline, the control and the managerial control should not be vesting in a foreign entity. If Tatas is a 30 percent partner there with 21 percent another domestic partner that means 51 percent is being held by Indian entities in Trans-Asia as well. That meets the requirement of the law, both FEMA as well as the Aircraft Act. According to two laws, control would remain with Indian entities. It does not say that a foreign investor cannot hold minority equity in more than one airline. Q: Subramanian Swamy has taken the Air Asia deal to court. He has challenged the fact that FDI regulation does not allow investment into a green field airline, it only allows investment into an existing airline. This will be the second green field airline proposed investment. Do you believe his contention holds any water? A: The matter is sub-judice. He has raised an issue that it had to be an existing airline which could part with 49 percent of its equity and both these airlines being new the law does not permit it. Prima facie that is not a correct reading of the law. The law does not make any distinction between a brown field or a green field project. It says in a domestic airline more than 49 percent cannot be held by a foreign airline. The word is foreign airline not a foreign investor. So, one airline investing in another airline to that extent unless there is something which is in the small print both the airlines the requirements of Indian laws is being met.