Singapore Airlines and India's Tata conglomerate announced on Thursday they would set up a new full-service airline based in New Delhi.
Singapore Airlines (SIA) and Tata Sons have signed a memorandum of understanding and applied for government approval for the new carrier, a joint statement said.
Its establishment "will help further stimulate demand for air travel", it said, adding the plan would be subject to regulatory approvals including from India's foreign investment promotion board.
The new carrier "will be based in New Delhi and will operate under the full-service model", the statement said.
Tata Sons will own 51 per cent of the carrier and SIA 49 per cent.
"We have always been a strong believer in the growth potential of India's aviation sector and are excited about the opportunity to partner Tata Sons in contributing to the future expansion of the market," said SIA chief executive Goh Choon Phong.
"Tata Sons is one of the most established and respected names in India. With the recent liberalisation, the time is right to jointly bring consumers a fresh new option for full-service air travel."
Prasad Menon, chairman of the proposed new carrier, said Tata believes civil aviation in India has sustainable growth potential.
"We now have the opportunity to launch a world-class full-service airline in India."
A spokesman for SIA told AFP the new airline will begin with domestic services.
"We would like the airline to operate international services but that will depend on obtaining further regulatory approvals," the spokesman said.
Details of the new carrier's branding, management team and products and services will be announced later.
Mahantesh Sabarad, an analyst with Fortune Equity Brokers, told AFP in Bombay the Tata group had always wanted to be in aviation.
"Maybe their ambitions have been renewed after India relaxed investment norms for the aviation sector last year," the analyst said.
Sabarad said SIA "would be keen to be in India" due to its long-term growth potential.
The new airline would be the Tata group's second venture into India's aviation sector in recent months.
In March, Malaysia-based AirAsia won approval from India's foreign investment panel to set up an airline in a joint venture with the Tata group and entrepreneur Arun Bhatia's Telstra Tradeplace.
AirAsia will own 49 per cent, the Tata group 30 per cent and Telstra the balance of 21 per cent.
Speculation about foreign interest in Indian carriers has been brewing since the government in September last year said it would allow overseas airlines to take up to 49 per cent stakes in domestic operators, as part of a blitz of economic reforms.
The sector, once vaunted as a symbol of India's economic vibrancy, has seen its fortunes fade in the face of aggressive fare rivalry, a slowing economy, over-expansion, rundown infrastructure, high airport charges and expensive fuel.
Indian carriers need money to fund expansion and cut debt after years of losses caused by the fierce fare battles and rising fuel costs.
Only privately held low-cost carrier IndiGo was in profit in the year to March 2012, out of India's six main scheduled carriers.
Kingfisher Airlines, controlled by liquor baron Vijay Mallya and once the second-biggest carrier, remains grounded by a cash crunch.
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