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Even though the proposed AirAsia-Tata joint venture (JV) got Foreign Investment Promotion Board (FIPB) approval last week only, it will be interesting to see how this proposal sails through in the civil aviation ministry as there have been some points of contention over this issue already.
Under the JV, AirAsia will have 49% stake, Tata Sons 30% and Delhi based real estate player Arun Bhatia 21%. However, operation control over the airline will be with AirAsia and Tatas have made it clear that they will only be investors. The next big challenge will be to get a no objection certificate from the ministry and an air operator's permit from the DGCA which could take up to six months.
Firstly, FIPB approved of this proposed Joint venture even as the civil aviation ministry raised some issues over this if the new guidelines applied only on foreign carriers investing in existing domestic ones or even those setting up joint ventures for greenfield operations.
DIPP's press note 6 on the issue had read: "Foreign airlines are allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. However, officials of the finance ministry and the Department of Industrial Policy & Promotion (DIPP) asserted that a strategically placed comma in DIPP's press note on FDI in civil aviation meant foreign airlines were allowed to hold up to 49% stake in existing Indian carriers, as well as new airline companies being set up.Responding to this civil aviation minister, Ajit Singh said, " The policy is absolutely clear. However, there are minor issues in the language of the note. I think DIPP should look in this matter so that there are no legal hassles in the future."
Secondly, there are varying opinions within the civil aviation ministry on how to tackle with the proposed AirAsia-Tata joint venture (JV).
On the one hand, civil aviation minister Ajit Singh says his ministry is open to giving the proposed airline a national air operator's permit to fly across the country. However senior officials in the ministry differ on the contentious issue saying that they would prefer initially to give a regional air operators permit before allowing them an all India operators permit.
Singh told Business Standard: "The AirAsia-Tata alliance has not yet applied, but we have no problem in giving it all-India permit. As far as demand-supply mismatch on trunk routes and growth in traffic, why should we worry? Let the airlines worry. The market forces will take care of that. Competition always benefits consumers."
All said and done, Air Asia is a success story and we can’t compare it with G.R. Gopinath’s case. He already has license for charter service and regional license. Let him fly that first and then we would consider upgrading it, Singh added.
A senior ministry official, however, said: "We have concerns over the firm being issued a national permit in the beginning. The ministry is about to bring new route dispersal guidelines for regional connectivity. If all start deploying planes on metro routes, there would be a demand-capacity mismatch."
Corroborating this, Kapil Kaul, CEO south Asia of Centre for Asia Pacific Aviation said, “The Ministry is not in favor of issuing new national licenses and usually recommends a regional license as the first step. It will be of interest to see how MOCA deals with the Air Asia application for a national license”
A regional permit allows an airline to operate in specified designated zones of the country. The holder of a regional permit can fly out of four regions - north, south, west and east, including northeast - and operate flights from a metro city in the chosen region to smaller cities within and outside the chosen region. A regional airline is not allowed to fly to a metro city outside its own region.
Thirdly, there have been questions raised by some officials in the civil aviation ministry over the plans announced by Tony Fernandes in public about the new airline.
Another senior official in the ministry has also raised some pertinent questions on the real intention of its CEO Tony Fernandes’s who in his public statement had said that it would start the airline with three to four A-320 aircraft. He had also said that they would initially concentrate on flying tier 2 and tier 3 cities instead of going to Delhi and Mumbai and fly in the south and west of India.
“Air Asia plans to start with a fleet of 3-4 planes. However, as per the rules, a minimum fleet of 5 planes is required. Apart from that, how viable it will be to fly 180 seater A-320s in tier 3 cities. Had they discussed all these things in civil aviation ministry first, Fernandes would have better clarity,” the official argued.
