Ratan Tata‘s initial love and subsequent aversion to the aviation business is well known, founded as it was on bitter experiences the group faced not once, but twice, with wayward policy.
The first time was when the Tata group tried to enter aviation by starting an airline in the early nineties in collaboration with Singapore International Airlines (SIA). And then again when he wanted to participate in the strategic disinvestment of Air India, again in collaboration with SIA. Both times, fierce competition and unscrupulous players in the business thwarted Tata’s plans.
According to today’s announcement, Malaysian low-cost airline AirAsia will hold a 49 percent stake in the airline JV, the other two partners being Tata Sons and Arun Bhatia of Telstra Tradeplace. The shareholding of the other two partners is not known. An Economic Times story quoted unnamed Tata officials as saying that their investment in this venture would be purely a financial one. But it still begs the question: why are the Tatas returning to try their luck in the aviation business?
In the nineties, when the Tatas’ bid to launch an airline failed it was alleged that rival Naresh Goyal ensured that the policy to allow foreign carriers to invest in Indian airlines was reversed just when the Tata proposal was being considered. Aviation industry veterans point out that Goyal’s airline, Jet Airways, was a fledgling carrier then with about 10-12 per cent marketshare and all he was trying to do was prevent a hypercompetitive scenario where his airline could not grow.
These allegations were, obviously, never proved but the policy did get changed and the Tata-SIA team had to withdraw emptyhanded. In his book, “An Outsider Everywhere – Revelations by an Insider” (Konark Publishers), MK Kaw, the then Civil Aviation Secretary, wrote: “The history of civil aviation in this country would have taken a different trajectory if Tata-Singapore Airlines had been allowed to float an airline.” An IANS story quotes Kaw from the book saying that the then Civil Aviation Minister CM Ibrahim refused to clear the Tata-SIA proposal despite policy papers being put up before him.
“The minister did not clear the file, despite several attempts on my part…….The Tatas finally got tired of waiting and withdrew their proposal.” Kaw also said that when private participation was permitted, Jet Airways had come up with 40 percent equity contribution by two airlines in the Gulf. “The Tatas had mooted a proposal for a private airline with 40 percent equity contribution from Singapore Airlines. As this would have been a formidable competitor, Jet tried hard to upset the rules regarding foreign equity contribution.”
So while Tata-SIA had to withdraw, even Jet was asked to restructure its shareholding so that the two foreign airlines were shown the door.
The second instance when Tata lost out was when he partnered SIA again to participate in the strategic disinvestment of Air India. SIA pulled out of the deal at the last moment as the government had begun to waver on whether to go ahead with the disinvestment and ultimately the plan was scrapped.
In his interviews just before handing over charge to Cyrus Mistry last December, Tata did not hesitate to term the practices in the aviation business as “destructive competition” and said his group was disinclined to try and enter the aviation business again. So what has changed now?
To begin with, the government has once again opened the doors to foreign airlines who can acquire up to 49 percent in Indian carriers. So a policy change could have spurred the Tata group to try its luck at aviation again. After all, the Tatas are aviation pioneers in India.
According to a CNBC-TV18 story, AirAsia plans to get operational control in the new airline with the Tatas and Bhatias providing local support and expertise. The story says Tatas will hold 30 percent equity in the company. So the Tatas are looking to be the silent partner here with all operational headaches remaining with AirAsia. Perhaps a model they are already familiar with since the Tatas already hold about 6 percent stake in SpiceJet where operational control remains with the Marans.
The question is: will the Tatas be third time lucky in aviation?
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