An agreement between budget airline AirAsia India with Tata Sons will perform complete control of AirAsia in Tata Sons hands. Ending months of speculation, Tata Sons, in December, entered into an agreement to buy an additional 32.67% stake in low-cost airline AirAsia from its Malaysian partner, AirAsia Berhad, for $37.6 million. This transaction will take Tata Sons’ stake in AirAsia to 83.67%. Tata group now holds a big digit 83.67% stake in the venture, with an option to acquire the rest 16.33% stake for dollar 18.83 million. Before this Tata and AirAsia together ran a budget airline called AirAsia. Tata group holds 51% of the stake and 49% of the stake AirAsia. The COVID-19 pandemic troubled the Malaysian airlines hurting the funds taken by the airlines and left no cash in the hands.
AirAsia India started flying in 2014. With a motive and a promise to break even after four months, but the budget airline never made money in Indian space line which is one of the world’s most difficult markets.
Tata which is one the global market leader. Tata Sons filed an expression of interest to airlift cash strapped Indian flag carrier AirIndia. In FY20 results, Tata Sons said that the pandemic completely destroyed the AirAsia India net worth. The AirAsia auditor raised the red flag about the JV’s ability to continue. In FY20, Tata Group invested nearly ₹490 crore in AirAsia India. The JV posted a loss of ₹317 crore in FY20.
Earlier this year, AirAsia Group, the budget airline, secured a US$72-million loan completed in accordance with laws, policies and procedures. After that, the Malaysian Anti-Corruption Commission started an investigation into the loan made to AirAsia by Sabah Development Bank (SDB). A bank which is wholly-owned by the Sabah State Government. In November Airbus resells six unwanted jets built for AirAsia due to a pandemic problem. In June, AirAsia had approached the industry saver company Tata. They approached Tata Group to sell its stake, by the terms of the joint venture as mandated Tata Sons had the first right to buy out the stake of AirAsia.
The Malaysian partner has been battling financial problems from the past times. COVID-19 pandemic gave a deep impact in the airline industry. The aerospace lines remained empty and the financial struggle for crew members resulted in massive numbers of unemployment. In November, AirAsia also gave a clear indication on exiting the India business, when its president Bo Lingam said, “[t]he businesses in India have been “draining cash” and causing much financial stress to the parent company.”
“Our businesses in Japan and India have been draining cash, causing the Group much financial stress. Cost containment and reducing cash burns remain key priorities evident by the recent closure of AirAsia Japan and an ongoing review of our investment in AirAsia India,” President (Airlines) of AirAsia Group, Bo Lingam said in the statement in November. The parent company AirAsia also ceased its Japan operations in October, citing “highly challenging operating conditions in Japan which have been aggravated by the COVID-19 pandemic.”
Group CEO of AirAsia Tony Fernandes had stated that they are in the process of reviewing whether to invest in India operations or expand in ASEAN countries. Additionally, Tata Sons also own 5% stake in the full-service airline with the rest of Vistara. The rest of it is captured or owned by Singapore airlines.
The board of directors of AirAsia wishes to announce that its wholly owned subsidiary, AAIL, has on December 29, 2020, executed a share purchase agreement (SPA) with Tata Sons Private Limited (TSL) to sell equity interest of 32.67%… to TSL for a total consideration sum (purchase consideration) of $37,660,000,” the regulatory filing said.
The airline completed six years of operations in June and has around 2,500 employees, including 600 pilots for its fleet of 30 Airbus A320 planes.
Industry sources have said that Tata may use AirAsia India as the vehicle for Air India investment, and it was important to get approval from the Malaysian partner. The second phase of the strategic disinvestment of Air India will start on Jan 5, 2021, with the announcement of the names of the qualified bidders. In the stage II shortlisted interested bidders will be provided with a request for proposal (RFP) and thereafter there will be a transparent bidding process, said in a presentation by the ministry.
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