FINANCE RESEARCH PAPER

SEMESTER II

TOPIC- AN ANALYSIS OF JOINT VENTURE OF AIRASIA AND

SINGAPORE AIRLINES

NAME- DHANANJAY BHARDWAJ

ROLL NO- E065

SAP ID-81022019314

SUBMITTED TO- PROFESSOR NAVEEN ROHTAGI

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ABSTRACT

The birth and increasing growth of incorporated joint venture airlines is being witnessed in
Asia. Since most jurisdictions limit foreign ownership of an airline to less than 50% and
require it to be effectively controlled by locals, the joint venture model has shown to be a
viable option. A common business strategy is for a parent airline group to own a minority
stake while local investors possess the majority. AirAsia was the first to use this strategy, and
Jetstar, Lion Air, Singapore Airlines, Spring Airlines, and VietJet have all used joint ventures
with local investors to create a foothold in foreign nations. Local investors can be classified
as either strategic or financial participants in the joint venture model. Local airlines that opt to
be a joint venture partner in order to build synergy with their own business and to try out a
new business model are often strategic investors. Financial investors, on the other hand, are
corporations that aren't necessarily interested in the aviation industry. For the past 15 years,
global airlines have learned that when they combine with strong local airlines, management
problems can occur. Foreign airlines should be aware of regulatory impediments in the
aviation business, even if they desire to maximise their corporate control authority in their
joint venture airlines. This one-of-a-kind situation raises some interesting corporate
governance challenges. From the standpoint of corporate governance, this essay discusses the
benefits obtained, lessons learned, and issues faced by joint venture airlines in Asia.

KEYWORDS- airasia, Singapore, airlines, financial investments, aviaion, corporate sector.

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INTRODUCTION

AirAsia India is an airline based in Bengaluru, Karnataka, India. The airline is a joint venture
between Tata Sons and AirAsia Investment Limited (Malaysia), with Tata Sons owning 83.67
percent and AirAsia Investment Limited (Malaysia) owning 16.33 percent. [4] [5] On June
12, 2014, AirAsia India began operations with Bengaluru as its primary hub.

AirAsia is the first foreign airline to establish a subsidiary in India, marking the Tata Group's
return to the aviation industry after ceding Air India in 1946 for 60 years. With a market
share of 7.2 percent as of June 2020, AirAsia India was India's fourth largest carrier, after
IndiGo, SpiceJet, and Air India.

Bangalore is the headquarters of AirAsia India. Prior to the airline's formation, Tony
Fernandes, the group's founder, stated that he wanted Ratan Tata to be the airline's chairman;
however, Tata declined, though he later agreed to be the chief advisor to the AirAsia India
management board. MittuChandilya, a management consultant, was named CEO of AirAsia

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India on May 15, 2013. S. Ramadorai, the non-executive vice-chairman of Tata Consultancy
Services, was appointed as the airline's chairman a month later, on June 17th. MittuChandilya
was replaced as CEO of the airline by Amar Abrol in April 2016. Amar Abrol reportedly
resigned in June 2018 and again in October 2018.Sunil Bhaskaran has been appointed as the
airline's Managing Director and CEO, according to AirAsia India.

AirAsia Berhad announced on December 29, 2020 that it would sell a 32.67 percent stake in
AirAsia India to Tata Sons for $37.7 million, with an option to sell the remaining 16.33
percent stake for $18.8 million.

Singapore Airlines (Chinese:, Malay: Syarikat Penerbangan Singapura, Tamil: ) is

Singapore's national airline, with its hub at Singapore Changi Airport. The Singapore Girl is a
well-known symbol for the airline in its corporate branding. It has been named the best airline
in the world four times by Skytrax and has topped Travel & Leisure's best airline rankings for
more than two decades. 

With a portfolio of 27 joint ventures, including Boeing and Rolls-Royce, SIA Engineering
Company manages maintenance, repair, and overhaul (MRO) business in nine countries.
Singapore Airlines Cargo manages the cargo-hold capacity in SIA's passenger aircraft and
operates the freighter fleet. Scoot is a low-cost carrier that is a wholly owned subsidiary.

Singapore Airlines was the first customer for the Airbus A380, the world's largest passenger
plane, as well as the Boeing 787-10 and the Airbus A350-ultra-long-range 900's variant.

The Singapore Airlines Group has over 20 subsidiaries, many of which are airline-related.

Malayan Airways Limited (MAL), a joint venture between the Ocean Steamship Company of
Liverpool, the Straits Steamship Company of Singapore, and Imperial Airways, was founded
on May 1, 1947. The airline's first flight was on 2 April 1947, when an Airspeed Consul
twin-engined aircraft was chartered from the British Straits Settlement of Singapore to Kuala
Lumpur. From 1 May 1947, regular weekly scheduled flights with the same aircraft type
began flying from Singapore to Kuala Lumpur, Ipoh, and Penang.Malayan Airways had
grown to include a large number of Douglas DC-3s by 1955, and the company went public in
1957. The Douglas DC-4 Skymaster, the Vickers Viscount, the Lockheed 1049 Super

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Constellation, the Bristol Britannia, the de Havilland Comet 4, and the Fokker F27 were
among the other aircraft that flew in the first two decades.

The airline's name was changed from "Malayan Airways" to "Malaysian Airways" when
Malaya, Singapore, Sabah, and Sarawak formed the Federation of Malaysia in 1963. Borneo
Airways was also acquired by MAL. Following Singapore's separation from the federation in
1966, the airline was renamed Malaysia-Singapore Airlines (MSA). The airline's fleet and
routes were rapidly expanded the following year, with the purchase of MSA's first Boeing
aircraft, Boeing 707s, as well as the completion of a new high-rise headquarters in Singapore.
Soon after, Boeing 737s were added to the fleet.

While airline alliances have many advantages, and all airlines are committed to sharing those
advantages, it is not possible (or even desirable) for all alliance members to collaborate on
route offerings. Airlines will choose to collaborate with other airlines that complement their
route offerings and help them grow their market share. Whether the airlines are part of the
same airline alliance or not, this can happen.A joint venture is an agreement between two or
more airlines to split revenue on a specific route (according to an agreed contract). They'll
work together on route planning and scheduling as well. These are usually large projects that
necessitate extensive negotiations. Due to the potential loss of competition, they frequently
require government approval.

Alliance members or airlines from different alliances could form joint ventures.

Aside from joint ventures and alliance membership, there are other ways for airlines to
collaborate. Codeshares, like joint ventures, can occur between any airline, whether or not
they are members of the same alliance. In comparison to a joint venture, these are much less
committed. Airlines will place their code on the flights of other operators and form a revenue-
sharing agreement. However, the main focus is on expanding flight options for both airlines'
customers.

There are also interline agreements to consider. These are the most basic forms of airline
cooperation. They primarily facilitate the booking of multiple airline tickets. For example,
they allow one airline to handle the entire itinerary's check-in and baggage acceptance.

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ABOUT VISTARA

Vistara is a joint venture between Tata Sons Private Limited and Singapore Airlines Limited
(SIA), with Tata Sons owning 51 percent and Singapore Airlines owning 49 percent. TATA
SIA Airlines Limited is the company's official name.

In 2013, two iconic brands, Tata Sons and Singapore Airlines, decided to realise a long-held
shared dream of providing a world-class flying experience to Indian passengers. The Tata
group had long wished to re-enter the aviation sector after Tata Airlines was renamed Air
India and eventually nationalised, owing to its strong historical ties to the industry. Both the
Tata group and Singapore Airlines were firm believers in the Indian aviation sector's growth
potential, and attempted to enter the market in the past; first, in 1994, by forming a joint
venture to start an airline in India, and then, in 2000, by partnering to buy stakes in Air
India.After foreign investment restrictions were lifted in 2012, the partners sought approval

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for a tie-up again, which they received in October 2013. TATA SIA Airlines Limited,
Vistara's holding company, was established on November 5, 2013.

The joint venture's common goal is to redefine air travel in India by offering Indian
passengers a seamless and personalised flying experience that combines Tata's service
excellence and legendary hospitality with SIA's. The name 'Vistara' comes from the Sanskrit
word 'Vistaar,' which means 'unlimited expanse.' Vistara's name is derived from the 'limitless'
sky that Vistara inhabits. The brand also takes inspiration from the image that most
passengers associate with a smooth and enjoyable flight: the endless, blue horizon seen
through the plane's windows. Vistara's brand tagline is "fly the new feeling" because it aims
to transform travellers' flying experiences in India.

Vistara began operations on January 9, 2015, with a flight from Delhi to Mumbai. Vistara has
rapidly expanded its footprint, both in terms of network and service offering, in a short period
of time. Vistara now flies to 40 destinations daily, with a fleet of 47 aircraft that includes 36
Airbus A320s, two Boeing 787-9 DreamlinersTM, three Airbus A321neos, and six Boeing
737-800NGs. Since its inception, Vistara has flown more than 20 million satisfied customers.

SIZE OF DEAL

With the proposed establishment of a joint venture carrier in India with Indian conglomerate
Tata, Singapore Airlines (SIA) has taken a major step forward in implementing its new long-
term strategy. The SIA Group will own 49 percent of the new full-service airline, giving the
company a significant presence in a strategically important market. Tata will own a majority
51 percent stake, giving it a second carrier to add to its portfolio alongside AirAsia India, as
well as a two-brand strategy similar to that used by airline groups across Asia.

After two failed take-offs 18 and 13 years ago, the Tatas and Singapore Airlines (SIA) are
launching a new joint venture. The proposed company has applied for permission to establish
a full-service airline based in New Delhi, with the Tatas owning 51 percent and SIA the rest.

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It has submitted an application to the Foreign Investment Promotion Board for a $100 million
initial investment.

This would be the first foreign airline investment in the aviation sector since the government
raised the foreign direct investment (FDI) limit from 26% to 49% last year.

AirAsia said it had applied to the Foreign Investment Promotion Board (FIPB) to take a 49
percent stake in a joint venture with Tata Sons Ltd and Arun Bhatia's TelestraTradeplace Pvt
Ltd in a statement issued here on Wednesday.

Following the acquisition of a 19.9% stake in partner Virgin Australia, SIA will have a close
involvement and equity in a new airline in India. SIA's key markets and strategic interests are
Australia, India, and China, as the company focuses more on the fast-growing Asia-Pacific
region. The only major missing piece of the puzzle SIA has been working on since Goh
Choon Phong took over as CEO in January 2011 is a partnership with and potential
investment in a Chinese carrier.

Mr Goh's bold new strategy also includes investments in the budget end of the market, with a
focus on Asia-Pacific, as SIA attempts to reduce its reliance on long-haul passenger and
cargo markets. With the launch of Scoot and increased involvement in Tigerair, SIA has
recognised the opportunities in the fast-growing budget end of the market, but it also wants to
maintain its leading position at the top end of the market, with continued investment in the
SIA premium product and now a new full-service airline in India.

GENERAL COMMENTS

In their Indian joint venture airline Vistara, Tata Sons and Singapore Airlines have invested
Rs 465 crore.

The investments were made against 46.5 crore new shares in the airline, according to
financial data accessed by the business intelligence platform Tofler. Singapore Airlines has
invested 228 crore, while Tata Sons has invested 237 crore for 23.7 crore shares.

The money was put into Tata Sia Airlines Limited, Vistara's operating company.

The fresh equity infusion comes at a time when the aviation industry is struggling to stay
afloat as a result of nationwide travel restrictions. According to India Ratings, the year 2021

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will bring three new challenges to the fore: higher fuel costs, increased competition, and a
race for market share.

Crude prices have risen dramatically around the world, owing to rising global demand.
According to ICRA, ATF prices in April 2021 were 59.8% higher year over year, and prices
in May 2021 were substantially higher by 103.4 percent year over year.

As a result, every $1 increase in crude price reduces the industry's operating profit by 6-7%,
according to Ambit Capital's Varun Ginodia. According to India Ratings and Research,
domestic and international travel recovery has been delayed by three and six months,
respectively.

According to BusinessLine's analysis of Vistara's financials over the last five years, the
company's losses have increased to 1,813.38 crore in FY20 from 400.90 crore in FY16. By
the end of FY20, it had increased its revenue from operations by 585.37 percent. Expenses,
on the other hand, increased by 497.46% between FY16 and FY20.

CASE STUDY

Vistara, a joint venture between Tata Sons Private Limited and Singapore Airlines Limited
(SIA), began operations in India in 2015, combining Tata's long tradition of service
excellence with SIA's global aviation expertise. In just five years of operation, Vistara has
flown more than 20 million passengers to 36 destinations and is aggressively expanding its
operations across the country and beyond. Vistara, India's first airline with a three-class
seating configuration, recently became the country's first airline to fly the Boeing 787-9
Dreamliner aircraft.

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Vistara is India's highest-rated airline on Skytrax and Tripadvisor, as well as a multiple "Best
Airline" award winner. Vistara has set a new standard for operations and service delivery in
the Indian aviation industry by providing passengers with the best possible flying experience.

Vistara, as a technology-driven company, is constantly looking to improve its IT resources

and infrastructure in order to keep up with rapid growth in both its own network and the
aviation industry as a whole.

Maintaining a consistent flow of communication and data exchange was becoming

increasingly difficult as the company's network grew rapidly in India and around the world.
Vistara was attempting to build a robust technology infrastructure capable of enabling real-
time and centralised communication among its network in order to meet the requirement.
While the company had a variety of WAN connectivity, management, and security solutions,
they needed to be consolidated, managed centrally, and optimised.Vistara's WAN topology
had to be re-charted and optimised, in short.

The business has recently begun a multi-cloud strategy. Mr. Subhash Kumar Mishra, Head –
IT Enterprise, TATA SIA Airlines Ltd, had this vision and dream. Subhash saw that Vistara
needed a strong and cost-effective solution to run a spectrum of applications with minimal
downtime and maximum performance, based on his 15+ years of experience and leadership
in complex IT implementations. The benefits of SD-WAN were quickly realised as a result of
this vision, and work on Vistara's ONE network across multiple locations began to take
shape.

Tata Sons and Singapore Airlines have partnered to form Air Vistara. This is their third
attempt to break into India's commercial passenger market, which is expected to triple to 452
million passengers by 2020. Air Vistara, based in New Delhi, is expected to begin operations
as an FSC in October of this year, with an initial projection of 87 weekly flights in its first
year (Madhok & Dutta, 2014).

The departure of Kingfisher Airlines from the market has resulted in a reduction in seat
capacity in the domestic market as a whole. This facilitated Air Vistara's entry into the
domestic market, allowing it to fill the void in seat capacity. As the competition among FSC
intensifies, Air India has announced its intention to convert a portion of its fleet to economy-
only seating. In the FSC market, this reduces the supply of high-quality full-service seats.

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Future-gazing: Five predictions for the industry

Will globalisation come back stronger?

There’s no doubt that globalisation is facing profound challenges. But we know that
corporate and private clients’ businesses and assets are more international than ever before;
enabling their pursuit of growth – domestically and overseas – will be critical to the
economic recovery. Structures and jurisdictions that can provide legal certainty will be top of
mind as they embark on these plans over the coming years.

Is this really it for offshore?

Economic substance legislation imposed by the EU has undoubtedly reduced some of the cost
advantages associated with the likes of crown Dependencies and British Overseas Territories
are parts of the United Kingdom that are not part of the United Kingdom. However, we

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believe there is.tax-neutral jurisdictions have a long-term role to playwith well-established
legal systemsto be regulated and to share information on a global scaleassist in bringing
disparate parts of the world togethereconomy. During times of political unrest,Not only do
these jurisdictions act as global connectors, but they also act as a neutral layer.between two
feuding factions We are convinced.jurisdictions such as the British Virgin Islands, Cayman
Islands, and the Cayman IslandsThe Channel Islands and Bermuda will continue to exist.10
years from now, it will be thriving.

Can tax mitigation survive?

Companies would argue that they have a legal right – and an obligation to shareholders – to
reduce tax bills through careful planning. But, over the next decade, could any form of tax
planning be outlawed?

In recent years, investors have become increasingly concerned about environmental, social,
and governance issues, and Covid-19 has emphasised the importance of companies and
wealthy individuals accepting their social responsibilities. Despite these changes, we believe
that tax-planning services will continue to exist in the coming decade, but that the
opportunities to do so will become even more limited.

Will privacy stage a fightback?

Clients have had to accept more transparency into their financial affairs as the movement to
share more information has gained traction around the world. However, as we move into the
digital age, new threats emerge. Privacy is a part of the solution, not the problem, as we
address these threats. Over the next decade, we expect a growing awareness of the dangers of
disclosing too much personal information in publicly accessible forums to lead to a more
thoughtful approach to information sharing. For example, in the case of beneficial ownership
registries, this would imply restricting access to a small number of trusted parties while still
allowing their use. The original goals must be met.

How will regulatory conflict be resolved?

In the short term, divergence on issues such as tax, substance, and transparency may increase
as countries prioritise the immediate welfare of their own businesses.

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However, in the long run, an acceptable middle ground on these issues will need to be found.
In the case of economic substance legislation, where it appears unlikely that North America
or Asia will follow Europe's lead in the near future, the EU may rely on corporations to effect
the change they desire.

CONCLUSION

While airline alliances offer numerous benefits, and all airlines are dedicated to sharing those
benefits, it is not possible (or even desirable) for all alliance members to collaborate on route
offerings. Airlines will partner with other airlines that complement their route offerings and
help them expand their market share. This can happen whether the airlines are members of
the same airline alliance or not. A joint venture is a partnership between two or more airlines
to share revenue on a specific route (according to an agreed contract). They'll also collaborate
on route planning and scheduling. Typically, these are large projects that necessitate lengthy
negotiations.They frequently require government approval due to the potential loss of
competition.

Joint ventures could be formed by alliance members or airlines from different alliances.

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There are other ways for airlines to collaborate besides joint ventures and alliance
membership. Codeshares, like joint ventures, can happen between any airline, regardless of
whether they belong to the same alliance. These are significantly less committed than a joint
venture. Airlines will place their code on other operators' flights as part of a revenue-sharing
arrangement. The main focus, however, is on increasing flight options for both airlines'
customers.

There's also the issue of interline agreements to think about. These are the most fundamental
types of airline collaboration. They are primarily used to book multiple airline tickets. For
example, they allow one airline to handle the check-in and baggage acceptance for the entire
itinerary.

BIBLIOGARPHY

 Gandhi, F. (2021, May 13). Tata sons, Singapore Airlines invest ₹465 crore
Invistara. @businessline. https://www.thehindubusinessline.com/companies/tata-
sons-singapore-airlines-invest-465-crore-in-vistara/article34551224.ece.

 Mehdudia, S. (2016, November 11). AirAsia ties up With Tatas to START airline in
India. The Hindu. https://www.thehindu.com/business/Industry/AirAsia-ties-up-with-
Tatas-to-start-airline-in-India/article12353764.ece.

 Wikimedia Foundation. (2021, July 9). History of Singapore Airlines. Wikipedia.

https://en.wikipedia.org/wiki/History_of_Singapore_Airlines.

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