Tigerair Taiwan will have a paid-up capital of Tw$2 billion ($67.5 million), with the Singapore-based carrier holding a 10 percent stake, the two airlines said in a statement.

China Airlines, Taiwan's leading airline by fleet size, will hold the remaining 90 percent.

Tigerair said in the statement the new airline will be managed as a standalone entity but will utilise its website as well as sales and distribution platforms.

"The new JV (joint venture) will allow us to extend our presence into the new untapped markets of Taiwan, Japan and Korea," said Koay Peng Yen, group chief executive of Tigerair.

Sun Hung-Hsiang, chairman of China Airlines, said: "China Airlines' knowledge of the Taiwan market coupled with Tigerair's expertise in the no-frills sector should stimulate demand in the civil aviation market here."

In a press conference at one of its hangars in Taiwan's Taoyuan airport, Sun said China Airlines had been considering investing in a low-budget carrier for four or five years.

He said the time was now right, given the improved relations between Taiwan and China and the "opening skies" of countries in the region.

Sun said the airline would benefit from Taiwan's location some four hours' flying time from Northeast Asia, Southeast Asia, Hong Kong, Macau and the Chinese mainland.

He said the joint venture was expected to become operational in 2014 with three A-320s, and the fleet would expand to 16 planes in 2016 or 2017.

He expected it to turn a profit in three years.

The formation of the new carrier comes just a month after TransAsia Airways, Taiwan's first private airline, secured government approval to set up a so-far unnamed budget subsidiary.

Demand for discount flying has been rising in Asia. Currently 12 foreign budget airlines, including Malaysia-based AirAsia and Japan's Peach Aviation, offer services to and from Taiwan.

Singapore's Tigerair, which was previously known as Tiger Airways before a rebranding exercise this year, has been looking for expansion opportunities in Asia.

Last year it bought a 33 percent stake in beleaguered Indonesian carrier PT Mandala Airlines. In March, it raised more than Sg$297 million ($237 million) to fund its Asian expansion plans.

Its shares rose 2.00 percent to Sg$0.51 in mid-day trade Monday after the announcement.