Comments
The Tata Group is moving to bet big on India’s aviation sector. Having bid for Air India, Tata Sons Ltd said on Tuesday it has acquired an additional 32.67 per cent stake in AirAsia India from its Malaysian joint venture partner, AirAsia Bhd, for $37.6 million.
This takes the Tatas’ stake in the venture to 83.6 per cent. There will be a call option for the balance 16.33 per cent stake in AirAsia, exercisable by Tata Sons at any time after the transaction is completed.
In addition, there will be a put option exercisable by AirAsia in two tranches, with the first exercisable from March 1 to May 30, 2022, and the second from October 1 to December 31, 2022. According to regulatory filings by AirAsia Bhd, the total consideration in respect of the options granted for its remaining 16.33 per cent stake shall be $18.8 million.
Cash burn addressed
AirAsia said the move is aimed at stopping cash burn at a time when its global operations have been hit hard by the Covid-19 pandemic. The company said that since “India is a non-core market,” the transaction will allow it to concentrate on recovery in its key Asean markets of Malaysia, Thailand, Indonesia and the Philippines.
Koushik Jagathalaprathaban, Independent Consultant at consultancy AT-TV, said the AirAsia deal will provide the Tatas with an alternative way to bid for Air India should Singapore Airlines (SIA) decline to invest through Vistara, a Tata-SIA joint venture.
“This also gives the Tatas a significant say in the running of at least one airline in their portfolio and removes uncertainty for the employees,” he said.
Sanjiv Kapoor, Senior Advisor at Alton Aviation and former executive at SpiceJet and Vistara, said AirAsia had had unrealistic profit projections. “India is a brutally complex and competitive market, one that is easy to underestimate in terms of what it will take to succeed, and overestimate in terms of success and profit potential, until you are actually here and experience the reality. Projections that it would be profitable within months were simply unrealistic,” he observed.
Positive for industry
Aviation expert Vipul Saxena termed the deal a positive for the aviation industry. It gives the Tatas a stronger position in the sector, they said.
However, both Vistara and AirAsia have been making losses and the proposed acquisition of Air India will add to the challenges.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.