Tata Sons have bought 32.67% stake in AirAsia India for 2.76 billion rupees (US$37.65 million) from AirAsia Berhad of Malaysia and raised their holding in the budget carrier to 83.67%.
In a regulatory filing to the Malaysian stock exchange, the AirAsia group said its wholly owned subsidiary Air Asia Investment Limited has executed a share purchase agreement with Tata Sons to sell its equity interest of 32.67% in AirAsia India, comprising 490,000,000 shares, to Tata Sons. The Malaysian group has also agreed to waive unpaid brand license fees payable by AirAsia India to subsidiary AirAsia Berhad.
The Indian salt-to-software conglomerate will also have a call option on the remaining 16.33% stake held by the the Tony Fernandes-owned group. It may exercise this right by the middle of 2021, Business Standard reports, quoting sources.
Air Asia Group has said that India is a non-core market and it will regularly re-assess its business strategies to improve 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 markets in Malaysia, Thailand, Indonesia and the Philippines in the long run,” it added.
The Malaysian budget carrier is looking to raise around 2.5 billion ringgit ($600 million) by the end of the year as it battles Covid-19 headwinds. The airline reported its fifth consecutive quarterly loss in the July-September period and recently shut down its Japanese subsidiary.
AirAsia India management has assured its travel agent partners, aircraft lessors, and employees that there’s no threat of the airline shutting down. It will have its own website from February and Tata’s software arm, Tata Consultancy Services, is reportedly working on a crew scheduling software.
AirAsia India started operations in June 2014 after India allowed foreign airlines to invest up to 49% in the Indian carriers. As part of the joint venture partnership, Tata Sons held 51%, while AirAsia Group held the rest. It currently has a fleet of 32 aircraft, a headcount of over 3,000 and a market share of 6.8%.
The airline has never made any profit since inception as India has been a difficult market with high fuel taxes and cut-throat fares. In addition, AirAsia Group CEO Tony Fernandes landed in a legal soup in 2017 after India’s Central Bureau of Investigation filed a complaint accusing him of trying to bribe Indian officials to get faster approval to operate foreign flights.
Tata Group has also submitted an expression of interest for the ailing state-owned airline Air India. The Indian government wants to sell 100% of its holding in Air India and low-cost arm Air India Express and 50% in ground-handling joint venture Air India SATS Airport Services.
The government will announce the names of the qualified bidders on January 5, and Tata may use AirAsia India as the vehicle for investing in Air India. The Tata Group had originally founded the airline in 1932 but it was later nationalized in the 1950s. It also operates the Vistara airline in partnership with Singapore Airlines.