New Delhi: The aviation deal struck by the Tata group and AirAsia Bhd, Asia’s largest low-fare airline, is creating a new synergy that may enable the companies to jointly build low-cost vehicles drawn from the stable of Tata Motors Ltd in Malaysia for sale in that country and other markets, three people familiar with the development said.
Among the vehicles proposed to be sold through a facility to be set up in Malaysia are the Nano, billed as the world’s cheapest car, and light commercial vehicles such as the Ace, Magic and Winger, said the people, who spoke on condition of anonymity pending a formal announcement.
If indeed the automobile deal does happen, it will enhance the global footprint of Tata Motors, which already has a strong presence in Europe after its acquisition of Jaguar Land Rover in 2008.
Malaysia-based AirAsia on Wednesday sought approval for an India joint venture (JV) in which it will hold a 49% stake. Tata Sons Ltd will own 30% and Arun Bhatia of Telestra Tradeplace Pvt. Ltd the rest. The proposed JV will invest up to $60 million (around Rs.330 crore) to start the airline in India.
The airline alliance was approved by the Tata board at its Bombay House headquarters two months ago, AirAsia chief executive officer Tony Fernandes said in an interview on Wednesday.
After aviation, the automobile industry is expected to be the next area of convergence for the Tata group and AirAsia.
A spokesperson for the Tata group declined to comment on the likely alliance in automobiles.
“They will get into bed together in the car business—not just the Nano,” said one of the people with direct knowledge of the matter when asked if Tata was opening a Nano factory in Malaysia in a JV with Fernandes. The alliance will include building and selling light motor vehicles as well.
The brainchild of Ratan Tata, chairman emeritus of the $100 billion Tata group, the Nano was introduced in the Indian market in 2009 as an affordable entry-level car with an initial price tag of Rs.1 lakh.
Tata’s plant at Sanand in Gujarat has the capacity to manufacture 20,000 units of the Nano a month, of which half is lying idle because the car is selling only in the range of 5,000-7,000 units every month.
AirAsia has set up ventures in the Philippines, Japan, Thailand and Indonesia as part of a strategy to expand in the Asian region. In December, the carrier ordered 100 Airbus SAS A320s valued at $9.4 billion, in addition to the 200 aircraft it had agreed to purchase in 2011.
“Tata has got a great brand. They have a good engineering group in England... So (there will be) lots of synergies. The two can do a lot with it in South-East Asia,” said the person with direct knowledge of the matter cited above.
Tata Motors has a European technical centre based at the University of Warwick, Coventry, UK. The centre is engaged in design engineering and the development of products for the automotive industry. AirAsia has connections with British car maker Caterham; Fernandes is the owner of the Caterham F1 Formula One team, which he bought from Bernie Ecclestone.
Asked how soon the proposed automobile alliance is expected to materialize, the same person said a JV was “imminent”, indicating that a broad agreement has been reached between the Tata group and AirAsia.
It is not clear if the automobile venture was cleared at the same board meeting of Tata Sons, the group holding firm, where the aviation JV was approved.
If the automobile alliance pans out, it would mark the entry into Malaysia of Tata Motors, which has been eyeing that market for seven-eight years, said a second person familiar with the development.
“They have been planning to enter South-East Asia for a long time and talks were going on with local companies such as Proton,” said this person, referring to Malaysian national car maker Proton Holdings Bhd. The “main thrust will continue to be small pickup vehicles”.
Last year, Tata Motors tied up with DRB-Hicom Bhd to supply trucks to Malaysia’s armed forces.
Fernandes’s relationship with DRB-Hicom goes back to 2001 when the former bought AirAsia, the heavily indebted subsidiary of the Malaysian government-owned conglomerate, DRB-Hicom.
DRB-Hicom also owns a 43% stake in Proton, which, according to media speculation, has in the past been in talks with Tata Motors to sell the Nano in Malaysia.
In reply to a detailed questionnaire, a Tata Motors spokesperson said, “We do not have any comments to offer. Suffice it to say that Tata Motors is currently looking at its international business as a whole.”
South-East Asia’s economies have proved resilient to the 2008 financial crisis and the ensuing global slowdown, with domestic consumption and rising investment looking set to propel growth over the next few years, the Organization for Economic Co-operation and Development said in November.
Shares of Tata Motors fell 2.04% to close at Rs.297.75 on a day BSE’s benchmark Sensex slumped 1.62% to 19,325.36 points.