Malaysia’s AirAsia has agreed to sell a 32.7% stake in its India venture to
partner Tata Sons for 153 million ringgit (about Rs 278 crore), which will
lower its interest in the budget carrier to 16.3% from 49%.
AirAsia also has the option to sell
the remainder 16.3% in the local JV to Tata Sons in two years for 76.3 million
ringgit (Rs 139 crore). A review of the JV has been on after the Malaysian
company, which created the low-cost airline revolution in Asia, was not keen on
infusing funds in the India unit due to its financial difficulties triggered by
the Covid pandemic, as TOI reported on October 5.
The proposed changes in the shareholding structure of AirAsia India comes more
than two years after Tata Sons raised its stake to 51% from 49%, becoming the
budget carrier’s majority owner. When the JV was formed in 2013, the Malaysian
company was its largest shareholder with an equity holding of 49%.
On Tuesday, AirAsia said, “Since the start of the Covid pandemic, the aviation
industry has been one of the hardest hit industries. Airlines around the world
have cancelled flights and grounded planes and the India unit is no exception.
Due to this, the company expects further capital requirements for the India
business. As India is a non-core market for the company…the transaction will
reduce its cash burn in the short term.”
TOI on December 21 reported that AirAsia will be reduced to a financial
investor, holding a ‘teen’ stake in the India unit, as it prioritises its
geographical play. Sources said AirAsia is continuing with a share in the local
venture as it wants to be “part of the Indian aviation action with minimum
investment”. The Malaysian company has also allowed the India unit to continue
to use the AirAsia brand for some time even as it has agreed to “waive off the
unpaid brand licence fee” payable by the arm to it.
The latest development places Tata Sons firmly in the cockpit of AirAsia India,
which is going to be the bid vehicle for Air India (AI), as TOI reported on
December 14. Besides, Tata Sons’s other aviation partner Singapore Airlines,
with whom it operates the full-service carrier Vistara, has shown reluctance in
participating in the AI bid due to financial difficulties induced by the public
AirAsia India has been unprofitable since it started to fly in 2014. The
Malaysian company added that its India investment has been accounted using the
equity method, under which the original cost of investment is adjusted for its
share of profit or loss in subsequent years. “The share of losses over the
years have resulted in the carrying value of the investment at the date of
transaction to be nil.” On Tuesday, AirAsia’s flamboyant founder Tony Fernandes
is learned to have told the India unit employees that he has a good relationship
with the Tatas and that “Ratan (Tata) is like my brother”. “I was very positive
for India and the Indian market is very good. But some people were after me in
India (perhaps referring to him being named in criminal conspiracy and money
laundering cases). While we are reducing stake in the company, we will explore
in future. Nothing is impossible,” Fernandes said.