The holding company of the Tata Group, which owns 51% in the six-year-old low-cost carrier, is in discussions to buy out the remaining 49% held by AirAsia, said a source in the know. Tata Sons has the first right of refusal for the minority stake owned by AirAsia in the India venture.
AirAsia, which announced its biggest quarterly loss in August, plans to raise $600 million through debt and equity to weather the pandemic even as it evaluates some of its operations outside Malaysia. In recent months, AirAsia’s founder and CEO Tony Fernandes has said that India is a peripheral market, which it could exit one day. In July, AirAsia’s auditor EY had flagged going concern doubts on the company’s operations after its current liabilities exceeded assets.
“AirAsia, because of its financial difficulties, is not keen on infusing capital into the India JV. It wants the JV to take on debt to run the operations. Tata Sons is forced to consider buying out AirAsia,” said the source. Tata Sons declined to comment on the report.
AirAsia India has been unprofitable since its launch in 2014. Tata Sons in its FY20 report said that the airline’s net worth was completely eroded and its auditor voiced worry about the JV’s ability to continue as a going concern. Tata Sons invested Rs 490 crore in AirAsia India in FY20, while the JV posted a loss of Rs 317 crore in the same period. Another source said that “The environment (Fernandes’ financial scenario) will influence Tata Sons’ decision on the JV and determine the exit price for AirAsia”.
Just before the pandemic, Fernandes had reportedly asked for a lucrative deal from Tata Sons against his waiver of the non-compete clause so that the latter could bid for Air India and its budget unit Air India Express when the government finalises the divestment date. According to the agreement between the two partners, Tata Sons cannot invest more than 10% in another budget airline. And if it wishes to do, it will need AirAsia’s approval.
The launch of AirAsia India had marked Tata Group’s return to aviation, a business it pioneered in India through Air India before the carrier was nationalised. Tata Sons also operates Vistara, a full-service airline, in partnership with Singapore Airlines.
AirAsia India has had a turbulent history from the beginning — the share-sale by businessman Arun Bhatia after he aired his unhappiness over the JV being run by the foreign partner in alleged contravention of norms, former Tata Sons chairman alleging corporate governance lapses between the two partners, Fernandes and others being named in criminal conspiracy and money laundering cases. AirAsia India, like other airlines, is currently seeing subdued demand after the country restricted travel due to the rising Covid cases.
Watch Tatas in talks to buy AirAsia’s 49% in JV