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14.8.14

There are two reasons why the Tatas had to wait a long time to re-enter the aviation sector - policy and influence.

1. Policy:In 1953 the Air Corporations Act, 1953 was passed giving the government monopoly over the Indian skies. So, there was no way for TATA to re-enter the aviation sector even if they wanted to. This continued till 1990 when India adopted the open sky policy allowing air taxi operators to decide their own flight schedules, cargo and passenger fares. Following this Jet Airways and Sahara airlines came up in 1992 and 1991 respectively.

In 1994, government monopoly was ended by repealing the Air Corporations Act of 1953 and replacing it with the Air Corporations Act, 1994. Now Private operators were permitted to provide air transport services.  This was basically a result of the liberalization process started by the Narasimha Rao government. By 1995, a number of  private airlines had ventured into the aviation business, this included Jet Airways Sahara, NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways.

Great! Now we had a market which private players could enter (even FDI was allowed, Gulf Air and Kuwait Air held 20% each in Jet Airways).

2. Influence:The Tatas have always paired with Singapore airlines in their two previous attempts.
TATA paired up with Singapore airlines and applied to start an airline service in 1995. Gulam Nabi Azad, the then Civil aviation minister was already facing flak for giving licenses to a large number of private players, so he decided to stop clearing any new proposals. Nearly two years passed, Devegowda's United Front government was in power now with CM Ibrahim as the civil aviation minister. In December 1996, the FIPB (Foreign Investment Promotion Board) suddenly cleared it and sent the proposal to the Cabinet Committee on Foreign Investment (CCFI). But now CCFI refused to clear it and forwarded it to the civil aviation ministry.

CM Ibrahim was opposed to foreign investments of any kind for supposedly patriotic reasons but there were allegations that Naresh Goyal (founder of Jet Airways) 'influenced' him. On April 1st, just days before Congress revoked support to the government, the Civil Aviation Policy was passed by the cabinet -

The aviation policy forbade any foreign airline or airport authority from entering the domestic aviation sector. Those with existing foreign airline or airport participation were given six months to divest the equity. As and when Indian carriers were of a sufficient size to be able to negotiate on equal terms with foreign airline investors then the restriction would be removed.



Naresh Goyal bought back Jet Airways' 40% stake from Gulf Air and Kuwait Air and Jet Airways went on to become the largest full service airline in the country. On November 15, 2010, Ratan Tata, the then head of the Tata group alleged that, during the 1990s, a minister had asked for a bribe of INR 15 crore (USD 3.3 million approx) to clear a proposed venture with Singapore Airlines, but he had refused to pay the bribe. He did not name the minister but most speculations point towards CM Ibrahim.



In 2000, there were attempts by the BJP government to re-privatize Air India to improve services. TATA and Singapore Airlines bid for a 40% stake in Air India but in 2001 Singapore airlines pulled out citing political opposition to their proposal.



Jet Airways' had been incurring losses for a long time but in 2012 things started going bad due to the loss making domestic operations combined with an enormous debt of around $2 billion (taken primarily to fuel expansion and combat IndiGo). Luckily(?) for Mr Naresh Goyal, in September 2012, the government allowed foreign airlines to buy up to 49% stake in Indian carriers. In April 2013, Etihad bought a 24% stake in Jet and became the first foreign airline to invest in a domestic carrier after the new rules became effective.

Why go for a JV?


It is like combining the best of both worlds. For Indian consumers TATA is a trusted brand and has experience in managing businesses in India while having Singapore Airlines as a partner means getting access to a globally renowned brand name and operational & management processes optimized over the years by Singapore Airlines, one of the seven 5 star airlines in the world. In fact, analysts are expecting TATA SIA Airlines, as the JV is named, to become bigger than Singapore Airlines itself in 20-25 years.


TATA also has a JV with Air Asia which is going to be a budget airline (Air Asia is going to start churning the Indian market pretty soon - its operational efficiency makes IndiGo look wasteful) while TATA SIA is going to be a full service airline. By investing in two JVs, the Tatas can grab a larger portion of the market. This would be much more difficult if they were to go solo.

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