As the due diligence process by India's conglomerate Tata Group in the country’s second-biggest airline Jet Airways with the intention of acquiring a majority stake in the financially troubled carrier, has started (see earlier report in CFG), Tata Sons is looking to end its 51% partnership Air Asia India, the Economic Times reported.
According to the report, the Tata Group holding company only wants to be engaged in one airline business, Vistara, the joint venture with Singapore Airlines (SIA).
Initial discussions about the exit have begun, even as the conglomerate inches closer to a separate deal to acquire ownership stake in India’s second-biggest airline Jet Airways from its founder Naresh Goyal.
Tata Sons, AirAsia and Singapore Airlines declined to comment on what they said was speculation.
Ongoing CBI investigations
The Economic Times report noted that finding a buyer for the Tata stake won’t be easy given AirAsia India’s small size and snail-paced expansion, losses and, most importantly, a Central Bureau of Investigation (CBI) investigating into alleged lobbying and irregular transactions by AirAsia Bhd CEO Tony Fernandes and other AirAsia executives.
Alternatively, Fernandes may look to sell, the report quoted a source aware of the matter as saying, adding that “With the cases against him, it is getting increasingly difficult for Fernandes to do business in India. But he won’t leave without getting a good value for his airline’s stake.”
One of the options being considered involves having a full-service brand - Vistara merged with Jet - and an equivalent of SIA’s low-cost carrier Scoot, which last year absorbed budget carrier Tigerair.
However, fully acquiring AirAsia India may not make too much sense for the Tata's, because it would get very little in the airline except the license and slots, as the reservation systems, infrastructure, accounting etc. are all owned and managed from Malaysia by AirAsia Berhad. The carrier’s cargo business, managed by the French ECS Group in close cooperation with local agents, doesn’t contribute large sums to the airline’s revenues either, people close to the case say.
Besides, AirAsia India operates a fleet of 19 leased Airbus A320s and it is unclear if lease agreements could be retained or renewed.
The Economic Times report said that "cracks appeared early on at AirAsia India with frequent clashes between the management and the Indian founders, primarily about operational control and decision-making being wholly with the Malaysian parent, which made sure many contracts, including plane leases, went to its own subsidiaries and affiliates."
Earlier this year, the report continued, CBI alleged facilitation of bribes by Fernandes and his colleagues and associates to public servants to influence the relaxation of rules on overseas flights by Indian carriers. AirAsia refuted the accusations contained in the CBI first information report.
The investigations are ongoing, and the government has withheld overseas flying rights to not just AirAsia India but also Vistara.
Nol van Fenema