In a move that is being pegged as the first step in consolidation of Tata Group’s aviation portfolio, Tata Sons will purchase 32.67 per cent stake in AirAsia India from Malaysian AirAsia Group Bhd, taking its holding in the joint-venture airline up to 83.67 per cent. In a filing to the Malaysian stock exchanges, the AirAsia Group said that the deal, which is worth $37.66 million, will see its share in the Indian budget airline go down to 16.33 per cent.
As of date, AirAsia held a 49 per cent stake in AirAsia India, while Tata Sons held 51 per cent. In addition to this, Tata Sons also owns 51 per cent stake in full-service airline Vistara, the rest of which it is owned by Singapore Airlines. Tata Sons also placed an expression of interest in the ongoing disinvestment process of Air India. In June, AirAsia had approached the Tata Group to sell its stake, as mandated by the terms of the joint-venture, according to which Tata Sons has the first right to buy out the stake. The Malaysian company, led by Tony Fernandes, had stopped funding the Indian venture following the Covid19-led slump in aviation businesses. In November, AirAsia said it was reviewing its India and Japan businesses.
Elaborating on the rationale of selling a significant part of its stake in AirAsia India to Tata Sons, the Malaysian firm said in the stock exchange filing: “Since the start of the pandemic, the aviation industry has been one of the hardest hit industries. Airlines around the world have cancelled flights and grounded planes and AirAsia India is no exception. Due to this, the directors expect further capital requirements for AirAsia India. As India is a non-core market for AirAsia (being a non-ASEAN country), the company will continue to regularly re-assess its business strategies and dispose of non-core investments”.
“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 airline group exited its Japan business earlier this year.
Tata Sons did not offer a comment on the development.
The deal values AirAsia India at $115.27 million. For the month of November, the airline had 6.6 per cent market share in India’s domestic air traffic, while the country’s largest airline IndiGo had 53.9 per cent share. AirAsia India’s revenues fell 69 per cent in the September-quarter. While its losses for the June-quarter weren’t disclosed, in the January-March period for 2020, its losses deepened to Rs 332 crore, from Rs 15 crore a year ago.
Pointing out that the India venture has been a loss-making one, AirAsia said: “The share of losses over the years have resulted in the carrying value of the investment at the date of transaction to be nil.”