AirAsia seeks govt nod for budget airline JV with Tata Sons

"We have carefully evaluated developments in India over the last few years and we strongly believe that the current environment is perfect to introduce our low fares," AirAsia chief executive Tony Fernandes said in a statement.

AirAsia, through its investment arm, AirAsia Investment Ltd, intends to own 49 per cent of the new airline with the remaining stake held by the two Indian firms. The venture plans to operate from Chennai in southern India and provide domestic flight options, said AirAsia.

The news comes after the carrier denied last year it was bidding for a stake in India's SpiceJet Ltd, the country's second largest budget airline.

India's aviation industry, which has seen continued losses due to high operating costs and regulatory uncertainty, was opened to foreign investors in September last year. Foreign carriers are now able to purchase up to 49 percent of local airlines.

No foreign airline has bought a stake in a local carrier since India relaxed investment rules. The UAE's Etihad Airways is in talks to buy a stake in Jet Airways, but no agreement has been reached. Sources previously said it makes more sense for foreign carriers to start an airline with a local partner so they don't have to assume the debt of an existing Indian airline.

AirAsia presently flies to four south Indian cities and the eastern city of Kolkata in addition to 20 countries across Asia and has indicated it plans to slow its overall expansion elsewhere.

AirAsia X, the long-haul carrier found by Fernandes, last year pulled out of India due to poor demand and profitability.

India's two biggest cities, Mumbai and Delhi, were taken off the AirAsia network last year due to a failure to access local distribution lines, according to market researcher the Centre for Aviation (CAPA).

"Securing the right local partner could resolve many of the challenges AirAsia has faced in serving India from its home markets," CAPA said in a report.

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