- POSTED: 20 Sep 2013 23:49
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Analysts say getting past India's regulatory hurdles is the biggest impediment to any successful joint venture in the country's aviation sector. But they are upbeat over SIA-Tata venture to set up a full service airline in India.
SINGAPORE: Analysts say getting past India's regulatory hurdles is the biggest impediment to any successful joint venture in the country's aviation sector.
But they are upbeat over SIA-Tata venture to set up a full service airline in India.
The Tata Group's holding company, Tata Sons Ltd, and Singapore Airlines have signed an initial pact to establish a joint venture to run the yet-to-be-named full-service airline which will be majority owned by the Tata Group.
After failed attempts to enter the Indian aviation market in 1994 and in 2000, analysts believe SIA's chances are much higher this time around.
In 1994, SIA and Tata formed a venture to start an airline in India. However, policy changes resulted in Tata dropping the plans in 1998.
In November 2000, Tata and SIA teamed up again to bid for a 40 per cent stake in state-run carrier Air India that the government has put up for sale.
But SIA decided not to proceed with the plan in September 2001.
Flightglobal's Asia managing editor, Greg Waldron, said: "I think SIA's chances are pretty good...it's a very well-run airline, it has very deep pockets.
“The biggest impediment will be getting regulatory approval appeals.
"There are two other carriers who have moved into that market in the last year. Etihad is looking at taking a 24 per cent stake in Jet Airways and that's taking forever to be approved. AirAsia is also working with Tata to set up a low-cost carrier but that's taking time to get off the ground.
“(Moreover), if a new carrier were to be launched in India, it'll have to fly for five years internally before they can fly internationally. That's a very peculiar rule of the Indian market.
"Now, new carriers would like to change this rule but there's going to be a lot of resistance from existing carriers, who had to wait five years, to allowing this rule to change."
Foreign interest in Indian carriers has been brewing since the government announced in September 2012 it would allow overseas airlines to take up to 49 per cent stakes in domestic operators.
Competition in that market is becoming more intense as the Gulf carriers eye the same market.
Etihad Airways is looking to take a 24 per cent stake in Jet Airways while AirAsia also has a joint venture with Tata Sons.
Meanwhile, SIA shares eased more than 1 per cent following news of the partnership.
Liu Jinshu, a lead analyst at Voyage Research, said: "I would say investors have yet to be overly excited about this piece of news. If you look at the consideration involved, SIA and its JV (joint venture) partner, both of them are just putting 100 million in this JV.
"I would say we are looking at a more gradual form of expansion rather than a one-shot full-scale boom in India. It's still a bit too early to say that… SIA will see very high profits out of this JV. "
Other experts note that the value of the rupee, increasing cost of operating airlines and low air traffic penetration in India are among the challenges in the Indian aviation sector.
Analysts say many airlines remain upbeat about India's reputation as a lucrative aviation market in the long run despite regulatory issues and excessive taxes, as rising incomes mean more people can afford to fly.
In fact, over 41 million passengers were flown domestically in India between January and August this year.