With talks of a Vistara-Jet Airways merger reportedly picking up pace, the latest buzz is that Tata Sons is looking to end its partnership with AirAsia Berhad, with which it formed a joint venture in 2013 to launch AirAsia India.
A person aware of the development told The Economic Times that 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". Tata Sons initially owned 30% of AirAsia India, but later increased its stake to 49% and then 51% to gain greater operational command. The rest is held by the Malaysian low-cost carrier.
But given the myriad troubles plaguing AirAsia India, ranging from burgeoning losses to allegations of financial irregularities and illegal lobbying against it, finding a buyer for the Tatas' stake won't be easy. According to filings with the Kuala Lumpur stock exchange, AirAsia India's net loss widened 2.6 times year-on-year to Rs 61.8 crore for the quarter ended June. In late May, the CBI filed an FIR against the airline and its officials, including Group CEO Tony Fernandes, for allegedly trying to manipulate government policies through corrupt means to bag an international flying licence.
Moreover, two years ago, a Deloitte Touche investigation had unearthed irregularities in the financial transactions of about Rs 22 crore involving the airline's former CEO Mittu Chandilya. These allegations were picked up by the Enforcement Directorate last year on a complaint by RSS ideologue Subramanian Swamy. AirAsia India's small size and snail-paced expansion does not help woo investors, either.
"With the cases against him, it is getting increasingly difficult for Tony to do business in India," a source told the daily, adding that Fernandes may look to sell. "But he won't leave without getting a good value for his airline's stake." An option reportedly 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.
However, according to sources, fully acquiring AirAsia India may be "an unviable proposition" for the Tatas since the conglomerate would get very little in the airline except the licence and slots. Its reservation systems, infrastructure, accounting etc. are all owned and managed from Malaysia by AirAsia Berhad or its companies.
The fate of AirAsia India's fleet of 19 Airbus A320 planes is also uncertain. In March, Asia Aviation Capital, a wholly-owned subsidiary of AirAsia Berhad, had agreed to sell its aircraft leasing operations to BBAM-managed entities in a staggered deal that would see 182 of its current and future aircraft with engines change hands. It is unclear whether AirAsia India's leased planes will also be transferred to BBAM or whether the lease agreements can be retained/renewed.
Besides, AirAsia India has seen frequent clashes between the Indian founders and its top management, primarily over operational control and the fact that the power of decision-making lay wholly with the Malaysian parent. Since its inception, the four-year-old airline had been run by CEOs chosen by the management of AirAsia Berhad, with current chief Sunil Bhaskaran being the sole exception. The Malaysian headquarters also made sure that many contracts, including plane leases, went to its own subsidiaries and affiliates.
Given the above, yet another option may be to shut down the airline but according to the daily, that's only seen as a remote possibility.
(Edited by Sushmita Choudhury Agarwal)