Malaysian budget carrier AirAsia's bid to launch an airline in India by joining hands with Tata Sons was today cleared by the Finance Ministry, the first such investment by a foreign operator.
Soon after the Foreign Investment Promotion Board (FIPB) gave its nod to the proposal at a meeting here, the Civil Aviation Ministry sought further clarity on the FDI policy in aviation, particularly on whether a foreign airline could invest in a new venture.
A senior government official said the initial investment by the AirAsia-led joint venture would be Rs 80 crore.
AirAsia has announced it would set up a 49:30:21 joint venture with the Tata Sons and Telestra Tradeplace of Indian investor Arun Bhatia to launch a new Indian airline.
The official said the FIPB clearance was granted in accordance with the policy which allows up to 49 per cent FDI by a foreign carrier in an Indian airline company.
Soon thereafter, the Civil Aviation Ministry sought clarity on the FDI policy in the aviation sector on the grounds that it spoke of allowing such investment in an existing Indian carrier and not a new one.
"The Commerce Ministry should change the rules to bring about clarity. Overall, I don't see a problem in the AirAsia joint venture. Our Ministry will see of the joint venture adheres to the laid-down rules," Civil Aviation Minister Ajit Singh told reporters here.
"There are some procedural problems.... The notification says (investment by a foreign airline in) an Indian carrier. So they (investor) have to follow the procedure because the Cabinet took a decision, following which the Commerce Ministry issued the notification," he said.
With the FIPB clearance, the AirAsia joint venture would now have to approach aviation regulator Directorate General of Civil Aviation (DGCA) for further clearances and a scheduled air operator's permit which allows an airline to undertake flying operations.
When the AirAsia joint venture applies to the Civil Aviation Ministry, the DGCA and other agencies would look into a variety of issues including the issuance of a No Objection Certificate (NOC) for launching of air operations and Scheduled Operator's Permit (SOP).
Before granting it the NOC and SOP, the Ministry would also have to see whether all procedures have been followed, including whether two-thirds of the Directors of the company's Board were Indians and the directors were security-cleared.
The AirAsia joint venture would be the first entry of a foreign carrier in the domestic aviation sector after the liberalisation of FDI policy in September last year.
AirAsia is looking to start flying from this year-end with 3-4 planes and would be headquartered in Chennai. It would focus on providing domestic connectivity to Tier-II and Tier-III cities.
AirAsia Group CEO Tony Fernandes was keen to kick off his airline in the country as early as May-June instead of his earlier plans towards the year-end. He has also said he has chosen the head for the airline company.
"I have selected the CEO for AirAsia India. A very smart boy from the South, Madras (Chennai). An amazing CV. Will impress all...," Fernandes tweeted without naming the person.
The proposed airline would not fly on international routes any time soon as the current rules only allow those airlines to do so which have completed five years of domestic operations and have a minimum fleet of five aircraft.
Tata Sons, the holding company of the USD 100 billion salt-to-software conglomerate, would hold 30 per cent in the joint venture but will not have any operating role in the airline, while the Bhatias would hold 21 per cent stake.
This will mark the return of Tatas to aviation sector. State-owned Air India had grown out of Tata Airlines, which began flights in 1932.
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