NEW DELHI—An Indian government panel Thursday approved a proposal of Singapore Airlines Ltd. C6L.SG +0.77% to establish a full-service airline in the country in partnership with the Tata Group.
 
The proposal was cleared at a meeting of the Foreign Investment Promotion Board, said Economic Affairs Secretary Arvind Mayaram, who heads the board. 
 
The board is a panel composed of bureaucrats who vet foreign investment proposals.

Singapore Airlines and Tata Sons next will seek approval from the civil aviation ministry to formally create the airline.

Singapore Airlines plans an initial $49 million investment to set up Tata SIA Airlines Ltd., according to the proposal submitted recently to the Indian government. 

Tata Sons will control 51% of the joint venture, and the remainder will be held by Singapore Airlines.


The new airline would be the second carrier created by Tata Sons, which controls the diversified Tata Group. 

The investment board had in March approved a proposal from Malaysia's AirAsia 5099.KU -1.42% Bhd. to start a budget airline in India, AirAsia (India) Pvt., in partnership with Tata Sons.

 
AirAsia owns 49% of AirAsia (India), Tata Sons owns 30%, and the remaining 21% is owned by privately-held Indian company, Telestra Tradeplace Pvt. 

That airline aims to start operations in December after receiving an operating permit from India's aviation regulator.


The Indian government in September 2012 allowed foreign carriers to own stakes of up to 49% in local airlines. Foreign airlines previously were prohibited from owning any stake in an Indian carrier, because the government feared that foreigners would take over Indian companies.

 
Following the government decision, Jet Airways (India) Ltd., the second-largest domestic carrier by market share, revealed in April its plan to sell a 24% stake to Abu Dhabi-based Etihad Airways for about $380 million. The Indian government approved the stake sale in early October.


Competition could pick up in the local aviation industry when these airlines begin flying, which will drive down ticket prices but hurt bottom lines of companies, analysts say. Indian carriers already struggle to make a profit, burdened by high operating costs and sluggish growth in passenger traffic.


A total of about 45.7 million passengers traveled domestically between January and September, an increase of 4.2% from a year earlier.