Tata Sons wants to fly out of joint venture with AirAsia 

Mumbai, November 17, 2018: Tata Sons is looking to end its partnership with AirAsia Bhd as it only wants to be engaged in one airline business, Vistara, the joint venture with Singapore Airlines (SIA), according to several people aware of the matter.

Initial discussions to this end have begun, even as the conglomerate inches closer to a separate deal to acquire ownership stake in India’s second-biggest airline Jet Airways from its founder Naresh Goyal according to the reports published in economictimes.indiatimes.com.

The Tata Group holding company is proposing to “exit AirAsia India and run the only full-service private airline in India, which is Vistara-plus-Jet,” said one of the people. Tata Sons owns 51% of AirAsia India with the rest held by Malaysia-based AirAsia Bhd.

Tata Sons, AirAsia and Singapore Airlines declined to comment on what they said was speculation.

Finding a buyer for the Tata stake won’t be easy given AirAsia India’s small size and snail-paced expansion, losses and snail-paced expansion, losses and, most importantly, a Central Bureau of Investigation (CBI) investigation into alleged lobbying and irregular transactions by AirAsia Bhd CEO Tony Fernandes and other AirAsia executives. Alternatively, Fernandes may look to sell, said one of the people.

“With the cases against him, it is getting increasingly difficult for Tony to do business in India,” said one of the people. “But he won’t leave without getting a good value for his airline’s stake.”

One of the options being considered involves having a full-service brand — Vistara merged with Jet — and an equivalent of SIA’s low-cost carrier Scoot, which last year absorbed budget carrier Tigerair. Still, fully acquiring AirAsia India may not make too much sense for the Tatas.

“That may be an unviable proposition for the Tatas,” said a person close to the development. “It would get very little in the airline except the licence and slots as the reservation systems, infrastructure, accounting etc are all owned and managed from Malaysia by AirAsia Berhad or its companies.” Another option may be to shut the airline but that’s seen only as a remote possibility, said the people cited above.

According to the reports published in economictimes.indiatimes.com AirAsia India’s planes have been leased from a company that used to be a subsidiary of AirAsia Bhd. Its operations have been sold to firms managed by BBAM Ltd, one of the largest aircraft portfolio managers in the world, in a staggered deal that will see the transfer of ownership of 182 jets. AirAsia India operates a leased fleet of 19 Airbus A320 planes. It couldn’t be ascertained whether the planes will be transferred to BBAM and whether lease agreements can be retained or renewed.

Tata Sons announced both ventures in 2013. AirAsia India started with an initial capital infusion of $30 million while Vistara started with $100 million. Tata first held 30% in AirAsia India, raised it to 49% and then 51% to gain greater command of operations.

The Tata-SIA partnership ratio of 51:49 has remained unchanged from the beginning. Cracks appeared early on at AirAsia India with frequent clashes between the management and the Indian founders, primarily about operational control and decision making being wholly with the Malaysian parent, which made sure many contracts, including plane leases, went to its own subsidiaries and affiliates. ET reported these issues in December 2015.

A forensic report by Deloitte in 2016 revealed allegedly irregular transactions with fictitious companies mandated by its first CEO Mittu Chandilya. This became a key element in the feud that followed the ouster of Cyrus Mistry as Tata Sons chairman.

Economictimes.indiatimes.com further added thar the allegations in the Deloitte report were picked up last year by the Enforcement Directorate on a complaint by RSS ideologue Subramanian Swamy. Following several top management exits over the past three years that have affected expansion plans, the Tata Group sought to stabilise the carrier by appointing Sunil Bhaskaran, previously at Tata Steel, as CEO in October. Before that it had named Deepak Mahendra, Tata Power veteran, as finance chief.

Earlier this year, the CBI alleged facilitation of bribes by Fernandes and his colleagues and associates to public servants to influence the relaxation of rules on overseas flights by Indian carriers. AirAsia refuted the accusations contained in the CBI first information report. The investigations are ongoing and the government has withheld overseas flying rights to not just AirAsia India but also Vistara.

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