Cross-Border Joint Venture Airlines in Asia: Corporate Governance Perspective

Abstract

Asia is witnessing the emergence and significant growth of incorporated joint venture airlines. The joint venture model has been a functional approach since most states restrict foreign ownership in an airline to less than 50% and require it to be effectively controlled by locals. A typical business model is for a parent airline group to have a minority share while local owners hold a majority share. This model was pioneered by AirAsia, and Jetstar, Lion Air, Singapore Airlines, Spring Airlines, and VietJet have managed to establish a presence in foreign countries through such joint venture arrangements with local investors. In the joint venture model, local investors can be categorized as either strategic investors or financial investors. Strategic investors are typically local airlines that choose to be a joint venture partner so as to create synergy with their own business and to undertake a new business model. In contrast, financial investors are companies that do not necessarily have a strong interest in the airline industry. For the past 15 years, foreign airlines have learned that management conflicts can arise when they partner with strong local airlines. Although foreign airlines want to maximize their corporate control power in their joint venture airlines, they should be mindful of regulatory hurdles in the airline industry. This unique circumstance creates interesting corporate governance issues. This article examines the opportunities gained, lessons learned, and challenges faced by joint venture airlines in Asia from a corporate governance perspective.