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| Monday, February 05, 2007 |
| Tata Group not entering airline business |
Ratan Tata, chief of the Tata Group, has indicated that the Group does not intend to enter the airline business for the time being.
This is significant since it virtually rules out the chances of the Tatas taking over SpiceJet, a low-cost airline, in which the Group picked up 6% stake recently.
"I am still very keen on aviation, but aviation as a sector. I have been keen on airlines also, but today, I am also one of the people who say that we do not want to be in the airline business at this time," Ratan Tata said in a television interview.
Ratan Tata's remark indicates a major change in his thinking since the time the Group unsuccessfully bid for Air-India in collaboration with Singapore Airlines.
The Tata Group had also tried launching a domestic airline in joint venture with Singapore Airlines, but this attempt too did not succeed.
Since the Tatas had owned Air-India before its nationalisation, the Tata Group was always considered to be interested in the business.
The talk of the Tatas entering the airline business had become louder recently since SpiceJet had offered the Tata Group representation on the low-cost carrier's board of directors. Industry sources said the Tatas have not accepted the offer. The Group does not plan to pick up more stake in the airline, according to them.
Through two investment arms, the Ewart Investments and the Tata Investment Corporation, the Tata Group had invested Rs 780 million in SpiceJet to pick up 6% stake. The Group has been maintaining that it was a financial investment and that it does not plan to take up management of the low-cost airline.
Ratan Tata's view that the Group should not enter the airline business possibly highlights the risks associated with the airline sector that has seen increasing competition and mounting losses of late. Almost all major carriers are in the red on account of high fuel prices and mounting salaries of pilots, engineers and other skilled professionals.
A number of players in the airline segment such as SpiceJet are coping with competition by infusing funds through private placements. Texas Pacific was to pick up stake in SpiceJet, but it did not do so. Similar was the case with Temasek.
In view of the increasing losses, airlines have now formed a federation to fight their case for lower taxes and better infrastructure.
However, overcapacity would be an issue since most airlines have placed huge orders for planes to be delivered over the next three to five years.
Despite the strong growth in traffic, large capacity induction is expected to mount pressure on bottomline of airline companies.Labels: Business |
| posted by a correspondent @ 9:56 PM |
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