Tata group mulls exit from JV with AirAsia as sector faces turbulence2 min read . Updated: 13 Jul 2020, 07:16 AM IST
- AirAsia’s Malaysian partner had approached Tata Sons to sell its 49%
- AirAsia India, which began operations in 2014, has been losing money despite being very conservative with its growth plans
Tata Sons Ltd is plotting an exit from loss-making AirAsia India where it holds a majority stake, said two people with direct knowledge of the matter.
Tata Sons, the holding company of the Tata group, has a 51% stake in AirAsia India. Malaysia’s AirAsia Bhd owns the remaining 49%. The budget airline had a 7.8% share of the domestic market in May, placing it in the fifth position.
AirAsia Bhd, which is facing headwinds due to airline industry disruptions from covid-19, had in June approached the Tata group to sell its stake, as mandated by the terms of the joint venture (JV) under which Tata Sons has the right of first refusal, one of the two people cited above said.
“Tata is not very keen on staying invested in AirAsia India. AirAsia’s Malaysian partner had approached Tata Sons to sell its 49% but Tata has not accepted the offer. In fact, the plan, which is in a preliminary stage, is to exit holding in AirAsia India and focus more on Vistara," the person said, requesting anonymity.
A Tata Sons spokesperson declined to comment to queries emailed on Saturday. AirAsia Bhd’s chief executive, Tony Fernandes, did not respond to an emailed query sent on Saturday. While the Asean region is a core market for AirAsia, India and Japan are considered peripheral ones.
Fernandes was cited as saying by Credit Suisse in a report recently that while the company continues to grow in key markets, it remains open to the idea of exiting the India market at some point.
AirAsia India, which started operations in 2014, has continued to lose money despite being very conservative with its growth plans. “Though there has been a greater focus on the airline’s performance by the shareholders, the airline hasn’t been able to achieve break-even yet," the second person said, seeking anonymity.
Aviation consultancy Capa India estimates AirAsia India to report a loss of more than $60 million in fiscal year 2020.
Declining financial performance aside, it has been an uneasy partnership between Tata and AirAsia.
In 2018, the Central Bureau of Investigation started a probe into allegations of bribery and corruption against AirAsia India and some of its senior employees over key changes in India’s civil aviation policy that were allegedly aimed at benefiting the airline.
Indian airlines, excluding market leader IndiGo, will need to raise a minimum of $3.5 billion to survive the grounding due to the lockdown imposed to contain covid-19, Capa India said. Domestic traffic is expected to decline to about 55 million this fiscal because of subdued travel demand following the pandemic, it said.