Malaysian JV partner’s likely exit may prompt Tatas to rename AirAsia India

K Giriprakash Bengaluru | Updated on October 07, 2020

Group may also rejig strategy to turn around the loss-making airline

Tata Sons, which owns a 51 per cent stake in AirAsia India, may have to carry out strategic changes including altering the name of the airline — or else have to continue to pay royalties — if it ends up buying out the 49 per cent stake of its joint venture partner AirAsia Berhad.

The JV partners are learnt to be involved in early talks as they negotiate on several fronts including the price Tata Sons might have to pay for AirAsia Berhad’s stake. The Malaysian partner has so far invested about $100 million (about ₹750 crore) in the venture while receiving about $143 million (₹1,055 crore) from lease rentals, royalty and a few other services.

Fresh start

Tata Sons may also want to make a fresh start with the airline, which has been embroiled in several controversies including allegations of fraud and poor safety standards.

Once the deal is done, Tata Sons will have complete control of running the airline. It will be the only carrier to operate with Bengaluru as hub, in contrast to its other JV, Vistara, competing with Spicejet and IndiGo as it operates out of New Delhi.

Sources close to the company said AirAsia India doesn’t have many assets except leased aircraft and over 3,200 employees.

All the A320s are fitted with CFM engines instead of Pratt & Whitney, which, according to analysts, is a big positive for the airline. The Pratt & Whitney engines were found faulty and at least one Indian carrier, IndiGo, had had to temporarily ground some A320s fitted with these engines before they were replaced with newer ones.

Kapil Kaul, CEO of aviation consultancy firm CAPA South Asia, told BusinessLine that the airline needs a continuous and steady flow of capital for the next couple of years and both the promoters need to fund the business. “If Air Asia Berhad is unable to invest in line with the requirements of the business, it is logical to expect Tata Sons to acquire Air Asia Berhad’s shareholding as they remain interested in the airline,” he said.

He added that CAPA views the acquisition of AirAsia Berhad’s stake by the Tatas as a big positive for the future of the airline.

Biggest challenge

The biggest challenge of the JV is the strategic over-dependence on Air Asia Berhad since the beginning, Kaul pointed out. That’s unnecessary and does not bring in anything significant for the carrier, he added. “I believe Indian promoters can create world-class airlines on their own like IndiGo.”

On the issue of how much Tata Sons might have to pay AirAsia Berhad to buy the rest of the stake, Kaul said given the state of the industry post Covid, and the funding required over the next two years, there should be an exit cost like the one Marans, the previous owners of SpiceJet, paid for the airline.

This would have been the case in other negotiations, he added.

However, the management will have to start inducting professionals from the airline industry to operate the carrier — something which AirAsia India has been found wanting, according to analysts.

Widening losses

The airline has posted profit only in one quarter since it began operations in 2014. For the April-June quarter, AirAsia India saw its losses widen to ₹332 crore as the lockdown and travel curbs hit the industry. During the same period last year, the loss was ₹15.11 crore. Its revenues stood at ₹90.08 crore in the June quarter, down 91 per cent year-on-year.

AirAsia Berhad recently closed down the operations of its 33 per cent-owned AirAsia Japan Co Ltd citing “highly challenging operating conditions”.

AirAsia Berhad CEO Tony Fernandes had previously said that if necessary, the airline might look at closing down the operations of the Japan JV while not ruling out exiting the Indian JV.

In an investor call with Credit Suisse a few months ago, he had said India and Japan are peripheral markets and that “while currently committed and growing, an exit (from India) could be a possibility.”

Published on October 07, 2020

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