The new budget airline plans to operate from the southern Indian city of Chennai and boost connectivity between smaller towns for Indian travellers.

The time of the launch "is in the hands of the Indian regulator... but most likely it will start by the fourth quarter", AirAsia's chief executive Tony Fernandes said in a conference call.

AirAsia, headquartered in Kuala Lumpur, plans to invest between $30-50 million in the venture, he said.

This is the first firm commitment of foreign investment in India's aviation sector since the government last September relaxed rules to let overseas airlines take up to a 49 percent stake in domestic carriers.

AirAsia will hold 49 percent, Tata Sons -- the group's holding firm -- 30 percent and independent investor Telestar Tradeplace the balance in the venture, which was announced on Wednesday.

AirAsia -- through its operations based in Thailand and Malaysia -- already connects Southeast Asia with Chennai, other southern cities like Bangalore, Tiruchirappalli and Kochi and Kolkata in the east.

"It will have a fleet of A-320s. We plan to start with three to four planes and scale up quickly after that," Fernandes said.

India's airline sector was once vaunted as a symbol of the country's economic vibrancy, with huge potential for growth. But its fortunes have nosedived due to over-expansion, intense competition, expensive fuel and low fares.

The proposal -- which awaits government and regulatory approval -- would mark the Tata group's return to aviation for the first time in around eight decades.

Former chairman J.R.D. Tata was passionate about planes and formed Tata Airlines in the 1930s. It was later nationalised by the government to become the country's flagship carrier, Air India.

In the 1990s the Tatas floated a plan for a domestic carrier in India with Singapore Airlines, but the proposal fell through.