The Indian civil aviation ministry has cleared Tata SIA Airlines Limited (Tata SIA), the India JV between SIA and Tata Sons. The final hurdle is approval from Directorate General of Civil Aviation (DGCA). We think Tata SIA will be crucial in growing SIA’s market share in India’s international flight, which is estimated by CAPA to be 4% in FY13. Tata SIA can value-add to SIA on two fronts: 1) serving India domestically from its home market, and 2) using India as a base to serve the region. However, we are cautious of regulatory hurdles given two previous failed collaboration attempts. Additionally, there are issues such as frequency of flights that will determine the JV’s success. Until there is more colour on the operation permit, we maintain our HOLD call with S$9.50 fair value.
Tata SIA cleared by civil aviation ministry
The Indian civil aviation ministry has cleared Tata SIA Airlines Limited (Tata SIA), the India JV between SIA and Tata Sons, and issued a no-objection certificate. There remains only one last hurdle - a formal airline licence from Directorate General of Civil Aviation (DGCA), the industry regulator. This can take months and is meant for the airline to showcase its technical capabilities to start operations. In AirAsia India’s case, a JV between AirAsia Bhd, Tata Sons and businessman Arun Bhatia, they have waited for over six months since receiving the no-objection certificate in Sep-13.
JV as inroad into India’s growing air travel market
CAPA estimates that SIA only has 4% market share of India’s international flight in FY13, leaving much room for growth. We think Tata SIA can value-add to SIA on two fronts: 1) serving India domestically from its home market, and 2) using India as a base to serve the region. Since the JV can serve India domestically as well, SIA’s coverage will be extended and become more convenient for passengers as a one-stop service. In addition, airline is a regulated industry whereby usually only third/fourth freedoms are given (i.e. only Singapore-India route allowed but not from India to other destinations). Hence, having this JV will allow flights between India and other parts of the world, thereby allowing SIA to tap on India’s growing air travel volume.
Third time lucky?
In 2000, the dual gave up a joint attempt to buy a 40% stake in Air India. An earlier attempt to start an Indian airline was also aborted. In both cases, political resistance and corporate rivalries were cited. We are thus cautious of history repeating itself in this third collaboration. Even after DGCA’s approval, there are issues such as the frequency of flights that determine the JV’s success. Though we think the JV could contribute significantly, it is pre-mature to re-rate until regulatory hurdles are cleared. We maintain our HOLD call with S$9.50 fair value.
The Indian civil aviation ministry has cleared Tata SIA Airlines Limited (Tata SIA), the India JV between SIA and Tata Sons, and issued a no-objection certificate. There remains only one last hurdle - a formal airline licence from Directorate General of Civil Aviation (DGCA), the industry regulator. This can take months and is meant for the airline to showcase its technical capabilities to start operations. In AirAsia India’s case, a JV between AirAsia Bhd, Tata Sons and businessman Arun Bhatia, they have waited for over six months since receiving the no-objection certificate in Sep-13.
JV as inroad into India’s growing air travel market
CAPA estimates that SIA only has 4% market share of India’s international flight in FY13, leaving much room for growth. We think Tata SIA can value-add to SIA on two fronts: 1) serving India domestically from its home market, and 2) using India as a base to serve the region. Since the JV can serve India domestically as well, SIA’s coverage will be extended and become more convenient for passengers as a one-stop service. In addition, airline is a regulated industry whereby usually only third/fourth freedoms are given (i.e. only Singapore-India route allowed but not from India to other destinations). Hence, having this JV will allow flights between India and other parts of the world, thereby allowing SIA to tap on India’s growing air travel volume.
Third time lucky?
In 2000, the dual gave up a joint attempt to buy a 40% stake in Air India. An earlier attempt to start an Indian airline was also aborted. In both cases, political resistance and corporate rivalries were cited. We are thus cautious of history repeating itself in this third collaboration. Even after DGCA’s approval, there are issues such as the frequency of flights that determine the JV’s success. Though we think the JV could contribute significantly, it is pre-mature to re-rate until regulatory hurdles are cleared. We maintain our HOLD call with S$9.50 fair value.
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