Tata Sons to increase its stake in AirAsia India to 83.67%

Tata Sons has entered into agreement to buy an additional 32.67% in AirAsia India, its joint venture with the eponymous Malaysian low fare carrier, for $37.6 million (Rs 275.9 crore) taking its holding in the company to 83.67%.

ET reported the deal online early Tuesday evening. Subsequently, AirAsia Berhad made an announcement of its share sale on the Kuala Lumpur stock exchange.

“The investment in AirAsia India, an associate company, has been accounted using the equity method under which the original cost of the investment is adjusted for our share of profit or loss in subsequent years. The share of losses over the years have resulted in the carrying value of the investment at the date of transaction to be Nil.”

“The proposed disposal will therefore result in a gain on disposal of $37,660,000 (equivalent to approximately MYR152.58 million) in Q4 2020 at both AirAsia India Ltd and consolidated group level,” it added.

“The net assets and cash balance of AAIL will also increase by the same amount immediately after this cash disposal exercise,” it said.

Tata Sons owned 51% in AirAsia India while AirAsia Berhad owned the rest.

The reason for the prompt increase in stake, apart from the Malaysian airline's intent to exit its India business, is that Tata Sons wants to keep an entity ready to bid for Air India, said a person close to the development.

Its other joint venture partner, Singapore Airlines in full service airline Vistara, is yet to be convinced to be on board for the investment.

The salt-to-software conglomerate has been in advanced talks for months to buy a controlling stake in AirAsia India. Recently, AirAsia Berhad freed Tata from a no-compete clause, leaving it free to bid for an airline in the budget space. The Air India bid also includes Air India Express, its regional international low-fare arm.

The Tata group on December 14 submitted an expression of interest to invest in the state-run carrier. It has been trying to convince Singapore Airlines to co-invest and free it of a similar no-compete clause but the airline hasn't given in yet. This means Tata may be to submit the final binding bit through its other airline entity: AirAsia India. To be sure, AirAsia India will itself be rebranded once the Malaysian airline's stake has been reduced to slightly less than 17%.

AirAsia Berhad last month gave the clearest indication yet about exiting the India business, when its president Bo Lingam said the businesses in Japan and India had been “draining cash, causing the group much financial stress.”

In June, a Credit Suisse report cited AirAsia global chief executive Tony Fernandes on a plan to exit from India. In August, ET reported that the auditors of Tata Sons had raised doubts about the capability of the airline to continue as a going concern, months after AirAsia Bhd’s own external auditors EY had raised similar concerns.

On December 8, ET reported AirAsia India was in talks with the Malaysian parent to return seven planes leased from the latter.
Tata Sons chairman Chandrasekaran has stated that the airline businesses have to be consolidated and there cannot be multiple carriers, according to people with knowledge of the matter.