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AirAsia India needs to expand fleet: analysts

K Giriprakash Bengaluru | Updated on January 20, 2018

AIRASIA



Tata Sons’ decision to increase its stake in loss-making AirAsia India to 49 per cent may have given the low-cost carrier a new lease of life.

But for that to happen, both Tata Sons and the other major partner, Malaysia-based AirAsia Investment (49 per cent), will have to pump in funds to expand the airline’s fleet and network.

Amber Dubey, partner and India head of aerospace and defence at global consultancy firm KPMG, believes that the development at AirAsia India is positive.

“It shows the long-term commitment of the Tata Group towards the venture. With the NCAP 2016 (new civil aviation policy) likely to be released soon and a new-look management team in place, things are looking up for AirAsia India,” Dubey said.

However, certain issues raised by Arun Bhatia of Telestra Tradeplace, now a former partner in the airline, remain. His allegation that the airline was being run by overseas partner AirAsia Investment was met with a stiff rejoinder from Tata Sons, which claimed this was not true.

New CEO

But weeks after that statement, the airline announced that it was appointing Amar Abrol, till recently the CEO of TuneMoney, an AirAsia company, as the CEO indicating that the Malaysian partner does a have a major say in the operations of the airline.

On Monday, Tata Sons announced that it would buy a 7.94 per cent stake from Bhatia’s Telestra Tradeplace, while S Ramadorai, Chairman of the airline, and director R Venkataramanan will pick up 0.5 per cent and 1.5 per cent, respectively from Telestra Tradeplace. AirAsia Investment will continue to own 49 per cent of the company.

“The equity structure may have changed but effective control of the airline seems to still remain with the Malaysian partner,” Nupur Sarraf, an independent airline analyst, told BusinessLine.

She said the partners should sort out this issue sooner rather than later.

The airline has been floundering since it was launched, and according to airline consultancy firm CAPA, has posted consolidated losses of up to ₹300 crore so far.

An analyst with a consultancy firm, who did not wish to be quoted, said that changes in the equity structure alone would not help the airline.

“What can a new set of top managers do to an airline whose fleet strength is a mere six aircraft. If they have to be taken seriously, they should pump in more funds and increase the size of the fleet,” he said.

With the government likely to do away with the first part of the 5/20 rule for airlines to become eligible to fly international routes, AirAsia India will have to fast-track the expansion of its fleet and add 14 more aircraft.

This will require additional investments by both Tata Sons and AirAsia Investment.

“What the airline needs is a clear cut, bold and long term direction and a very visible commitment from the promoters,” the analyst said.

Published on March 28, 2016

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