English: Singapore Airlines Airbus A300B4-203 (Photo credit: Wikipedia)Singapore Airlines Ltd., one of the leading global airline brands, has announced its entry into India in a joint venture with the Tata Group, the third foreign airline to do so after Abu Dhabi's Etihad Airways and Malaysia's AirAsia Bhd.
The airlines are taking advantage of a historic decision by the Indian government in September last year that allowed overseas airlines to invest up to 49% in local airlines. Previously foreign investors, but not airlines, had been allowed to hold up to a 49% stake in local airlines.
Under the agreement it signed with Tata Group holding company Tata Sons Ltd., Singapore Airlines will hold a 49% stake while Tata will have a 51% in the yet-to-be-named, full service airline in India.
With this deal Tata will be doubling its bet on the Indian aviation sector. Earlier this year signed an agreement to start a budget airline in partnership with AirAsia and a closely held Indian company, Telestra Tradeplace Pvt. Ltd. The deal is pending approvals.
Etihad was the first to enter the Indian aviation sector with a deal to buy a 24% stake in Jet Airways, India's second-largest domestic and international carrier. That deal is expected to close in the next couple of weeks.
Despite this interest, the Indian aviation sector is a troubled one.
Indian carriers lost about $1.6 billion in the financial year ended March 31 - with most of this accounted for by Air India and Kingfisher - as a result of increased expenses and declining passenger traffic, according to a report by the Capa Centre for Aviation in Sydney.
Any new entrant has to to be prepared for several years of losses and a tough domestic market that is dominated by low cost carriers which hold 65% of the market, Capa said in a separate note on the Tata-Singapore Airlines deal.
That said, India now has only two full-service domestic airlines-national carrier Air India and Jet Airways-and without the legacy issues faced by those two, 'Tata and Singapore Airlines may be in a position to establish a more competitive, hybrid business model, offering a high quality product with a lower cost base that then incumbent full service carriers,' Capa said.
The greatest potential may be in international routes as international traffic in and out of India, unlike domestic traffic, has grown every year in the past decade, including during the economic slowdown. However, since Indian regulation requires a new airline to operate in the domestic sector for five years before it can fly international routes, this opportunity is still some ways off.
The more immediate question is how will Tata manage its two competing agreements? While one is for a new budget carrier and the other is for a new full-service airline, the two will still largely be playing in the same sandbox, at least until indian authorities relax their five-year rule on international flights (and there's no clarity on when that might happen).
Until then, there might be a lesson in management on how Tata dances with two, competing partners.
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