Tata Sons will buy 32.67% of AirAsia Berhad’s stake in the Indian joint venture AirAsia India, giving the group complete freedom to make it the vehicle for its upcoming Air India bid. Tata’s stake in AirAsia India will rise to 83.67% while the Malaysian carrier’s stake will drop to 16.33%. The deal was done for $37.6 million (₹275.9 crore).
Tata Sons can exercise a call option for the remaining stake any time after the transaction, which is slated to be completed by March 2021.
ET first reported the deal online early Tuesday evening. Subsequently, AirAsia Berhad made an announcement on the Kuala Lumpur stock exchange.
‘SIA still being Wooed’
AirAsia India may become the Tata Group’s vehicle for the Air India bid as its other airline partner, Singapore Airlines in Vistara, remains reluctant to come on board to invest in the state-run carrier, a person in the know said.
“The entity will be rebranded going ahead. SIA is yet to get on board for the Air India bid. So AirAsia India with Tata as the significant majority holder will be renamed in case the bid will have to be done through that entity. There could be last-minute developments or changes and the group is keeping its options open,” said an official close to the development.
Tata Sons has been trying to convince Singapore Airlines to co-invest and free it of a no-compete clause, but the airline hasn’t given in yet. AirAsia has already freed Tatas of a similar non-compete clause. The Tata Group on December 14 submitted an expression of interest to invest in the state-run carrier. The Air India bid also includes Air India Express, its regional international low-fare arm.
“The JV partner (SIA) is still being wooed by the Tata Group. SIA is also aware that it does not have the financial muscle or options post Covid,” another group official said.
Tata Sons chairman N Chandrasekaran has stated that the airline businesses have to be consolidated and there cannot be multiple carriers, according to people with knowledge of the matter.
“AirAsia will be folded into Air India and Vistara may stay separate, or if bidding is done through Vistara, then AirAsia may stay separate. Options are being considered, but it is clear that we do not need too many entities that will raise operational costs,” an official aware of developments had said earlier.
AirAsia Berhad last month gave the clearest indication yet about exiting the India business, when its president Bo Lingam said the businesses in Japan and India had been “draining cash, causing the group much financial stress.”
In June, a Credit Suisse report cited AirAsia global chief executive Tony Fernandes on a plan to exit from India. In August, ET reported that the auditors of Tata Sons had raised doubts about the capability of the airline to continue as a going concern, months after AirAsia Bhd’s own external auditors EY had raised similar concerns.
On December 8, ET reported AirAsia India was in talks with the Malaysian parent to return seven planes leased from the latter.
In its statement Tuesday, AirAsia said the Covid-19 pandemic resulted in cash-burn for the carrier, prompting it to focus on core markets.
“As India is a non-core market for AirAsia (being a non-Asean country), the company will continue to regularly reassess its business strategies and dispose of non-core investments to augment its liquidity. This transaction will reduce cash-burn of the company in the short term and allow AirAsia to concentrate on recovery of its key Asean (Association of Southeast Asian Nations) markets in Malaysia, Thailand, Indonesia and the Philippines in the long run,” the airline said.
Source: Economic Times