Singapore Air and Tata plan full-service Indian airline


* Tata to own 51 pct, Singapore Air 49 pct

* Initial investment $100 mln

* Tata's second airline start up JV after AirAsia tie up (Adds comments, details)

By Devidutta Tripathy

NEW DELHI, Sept 19 (Reuters) - India's Tata Group andSingapore Airlines plan to form a full-service airlinebased in New Delhi, adding a deep-pocketed player to afast-growing but competitive Indian aviation sector where mostoperators lose money.

The two will initially invest a combined $100 million tostart the carrier, with Tata Sons owning 51 percentand Singapore Airlines, Asia's second-biggest carrier by marketcapitalisation, the rest.

The tie-up is the second airline joint-venture announcedthis year by the Tata Group, a salt-to-software conglomeratethat is India's biggest business group.

In February, Tata and Malaysia's AirAsia Bhd announced plans for a low-fare airline based in the south Indiancity of Chennai. Tata has a minority stake in that venture,which aims to start service by the end of the year.

India's domestic air traffic is expected to almost tripleduring this decade, the government estimates, as more of thecountry's 1.25 billion people start flying and airlines connectsmaller cities.

For now, the industry is hobbled by high fuel costs andtaxes and low fares, with all but one of the five main carrierslosing money. Low-cost, no-frills, airlines led by IndiGoaccount for about 70 percent of domestic traffic.

Kingfisher Airlines, a full-service carrier thatwas India's second largest, has not flown in a year for want ofcash.

"As far as the future is concerned, if the airlines gettheir acts right, the government gets its act right, it couldjust explode. This is something that the Tatas and SingaporeAirlines must have seen," said Rajan Mehra, India head ofU.S.-based private jet operator Universal Aviation and ex-headof Qatar Airways' India operations.


Last year, India allowed foreign airlines to buy up to 49percent in local carriers in an effort to bolster the ailingindustry. In April, Abu Dhabi's Etihad agreed to buy a 24percent stake in India's Jet Airways.

"It is Tata Sons' evaluation that civil aviation in Indiaoffers sustainable growth potential," the Tata Group's PrasadMenon, who will be the chairman of the planned carrier withSingapore Airlines, said in a statement.

India's two full-service carriers, Jet and state-owned AirIndia, will feel the biggest competitive impact fromthe new tie-up, analysts said.

Amber Dubey, an aviation specialist at KPMG, said nearly 70percent of international traffic from India is westbound.

"This will open up competition in the westbound routes fromIndia," he said. "With this JV, SIA (Singapore Airlines) gets aplay in the growing international travel from India."

India requires airlines to fly domestically for five yearsbefore flying overseas, although government officials haveindicated that rule could be relaxed.

The joint venture needs numerous regulatory approvals andcould take more than a year to be operational, said Kapil Kaulat the Centre for Asia Pacific Aviation, a consultancy.

Tata Airways was India's largest airline before thegovernment took it over in 1953 as part of its nationalisationdrive following India's independence from Britain, and wasrebranded Air India.

In 2000, Tata and Singapore Airlines jointly bid for a stakein Indian Airlines, the state carrier that later merged with AirIndia. Rules at the time preventing foreign airlines frominvesting in Indian carriers thwarted a deal. (Additional reporting by Aradhana Aravindan in Mumbai and SivaGovindasamy and Anshuman Daga in Singapore; Editing by TonyMunroe, Elaine Hardcastle and Mark Potter)

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