The Foreign Investment Promotion Board (FIPB) is holding a meeting on March 6 and the proposal of AirAsia Investment Ltd, Malaysia, has been listed on the agenda.
AirAsia has applied to FIPB to take 49 percent in a venture with Tata Sons Ltd and Arun Bhatia's Telestra Tradeplace Pvt Ltd, the Malaysian company had announced this week. This will mark the return of Tata to aviation. State-owned Air India had grown out of Tata Airlines, which began flights in 1932.
This will be the first entry of an foreign carrier in the domestic airlines after the government liberalised the aviation FDI policy in September. The new policy allows foreign carriers to invest in Indian airlines.
Meanwhile, a JP Morgan research report says that AirAsia's joint venture airline would impact the pricing and yields of domestic carriers. "We think it (the alliance) is negative for Indian carriers, especially SpiceJet, given its major presence in Tier II/III cities. With traffic under pressure, it would be a challenge to sustain higher yields. The entry of new players could put pressure on pricing," JP Morgan analyst Corrine Ping said.
The proposed joint venture will operate from Chennai and will focus on providing domestic connectivity to Tier-II and Tier-III cities. AirAsia currently flies to Chennai, Bangalore, Kochi, Tiruchirappalli and Kolkata in addition to 20 countries around the world.
India's rising middle class offers much promise in terms of aviation traffic growth but according to the figures provided by Directorate General of Civil Aviation, the number of passengers carried by domestic airlines fell by 3 percent from the previous year to 53 million between January and November 2012.
On the policy front the some officials say that the principal objective behind the open skies was to attract large international airlines to invest in Indian carriers so that these could fly to distant destinations rather than short haul sector.