(Updates with closing share prices in ninth paragraph.)
Sept. 20 (Bloomberg) -- Singapore Airlines Ltd. tied up with Tata Group, owner of the Jaguar and Land Rover brands, to start an airline in India, its third attempt to tap the surging travel demand in the world’s second-most populous nation.
Tata will hold 51 percent of the venture and Singapore Air the remainder, the airline said in a statement yesterday. The two companies entered into an initial agreement for a $100 million investment and are seeking government approval to set up the full-service carrier, to be based in capital New Delhi.
Entering India will enable Singapore Air to get a foothold in a market where the number of air passengers is forecast to triple to 452 million by 2020. Asia’s third-largest economy last year permitted foreign airlines to buy stakes in local airlines, a move that brought in investments from budget carrier AirAsia Bhd. and Abu Dhabi’s Etihad Airways PJSC.
“This is terrific news for Indian aviation,” said Mark D. Martin, chief executive officer of Dubai-based Martin Consulting LLP. “The Tata-SIA venture will provide the much-needed balance in Indian aviation space between full-service and budget carriers.”
Prime Minister Manmohan Singh’s government changed laws last year to allow foreign airlines to buy as much as 49 percent in local companies, reversing a decade-old ban that had kept out carriers like Singapore Air from the Indian market.
AirAsia also chose Tata for its venture in India. Tata Sons Ltd., the holding company for the group, owns 30 percent in the new discount carrier, which is awaiting final approvals to start operations later this year.
Entering India is not without risks. Airlines have to confront the region’s highest fuel costs, a depreciating currency and the lack of adequate infrastructure.
Jet Airways (India) Ltd., the carrier that Etihad is investing in, hasn’t made a group profit for six years. SpiceJet Ltd., controlled by billionaire Kalanithi Maran, posted losses for a second straight year in the period ended March 31. Liquor baron Vijay Mallya’s Kingfisher Airlines Ltd. grounded its planes last year after mounting debt and struggling to pay salaries.
Shares of Singapore Air fell 0.3 percent to S$10.44 at the close of trading in the city-state. The stock has fallen 2.9 percent this year. Nine of 21 analysts recommend investors buy Singapore Air stock, while seven say hold and five sell, according to data compiled by Bloomberg.
Jet Airways shares have slumped 36 percent in Mumbai trading this year and SpiceJet 50 percent.
India’s economic growth has helped double airline-passenger traffic in the country over the past seven years. Five airlines operate in India’s skies now. The nation’s aviation rules don’t bar companies from forming two ventures, Civil Aviation Minister Ajit Singh said yesterday.
“The Indian aviation industry is projected to experience future high growth rates,” Singapore Air said in the statement. “The recent Indian government decision to allow foreign airlines to invest up to 49 percent in Indian carriers provides an opportunity for SIA to participate directly in one of the fastest growing and largest aviation markets globally.”
Tata doesn’t see a conflict of interest in partnering with Singapore Air for a full-service airline and AirAsia for a budget carrier, Mukund Rajan, a group spokesman, said in a phone interview. The $100 billion conglomerate has businesses ranging from automobiles, hotels, steel and software.
The group formerly operated Tata Airlines that later became state-owned Air India Ltd. In 1932, Tata Airlines began meeting Imperial Airways’ London-to-Karachi flight and then continued to Madras, now called Chennai, via Mumbai.
It used a de Havilland Puss Moth monoplane, which had a cabin instead of an open cockpit. Former Chairman J.R.D. Tata piloted the inaugural flight, which hauled mail.
Singapore Air has tried in the past to enter the market. In 1994, the company and Tata formed a venture to start an airline in India. Policy changes prevented that from starting and in 1998, Mumbai-based Tata dropped its plan to start an airline.
In November 2000, Tata and Singapore Air teamed up again, to buy 40 percent of state-run carrier Air India that the government was putting on the block. In September 2001, Singapore Air decided not to proceed with that plan.
“The Tata-SIA joint venture was long overdue, and should have started 15 years back,” said Kapil Kaul, head of the Indian unit of consultant CAPA Centre for Aviation. “Foreign direct investment rules are game-changing and we will see a new era in Indian aviation, subject to government not creating regulatory challenges.”
--With assistance from Bhuma Shrivastava in Mumbai. Editors: Anand Krishnamoorthy, Vipin V. Nair