Tata Sons is planning to gradually raise its stake in AirAsia India to more than 76 per cent by the end of 2020-21, people aware of the development have said.
Tata and Air Asia India
Tatas increasing stake in the airline will give an exit route to Malaysia’s flagship budget carrier AirAsia Berhad, which holds 49 per cent stake in the company. The Business Standard reported that The AirAsia Group recently said it was reviewing its investment in the joint venture, as operations of the company — like those of its now-shuttered Japan business — have been draining cash and adding to the group’s financial stress.
Will Air Asia India Get Us $ 50 million?
The Tata group will provide as much as $50 million in emergency funding to keep its budget airline joint venture in India with Malaysia’s AirAsia Group Bhd afloat, two people directly aware of the matter were quoted in an article reported by Mint.
The fund infusion through a mix of debt and equity could see the Tata group’s stake in Air Asia India Ltd grow beyond the current 51%, the people said on condition of anonymity.
The Malaysian parent, struggling to recover from a global slump in travel, has stopped funding the Indian operations and has hinted at exiting the market, leaving Air Asia India dependent on the Tata group to fund the cash burn suffered during the pandemic.
“The Tata group will remain invested in AirAsia India though it may seek out a suitable partner to invest in the airline in the future,” one of the two people aware of the group’s strategy said. “The Tata group is looking beyond the pandemic when it comes to the aviation sector. It firmly believes that the domestic aviation market will come back strongly in the medium term and that there is clearly enough space in the market for a domestic LCC (low-cost carrier).”
AirAsia Group, which owns a 49% stake in AirAsia India, last week said it is evaluating its money-losing airline joint venture in India with Tata Sons Ltd in the wake of the losses caused due to the coronavirus pandemic.
AirAsia India has slashed pilot salaries by an average of 40% in May and June.
The airline completed six years of operations in June and has around 2,500 employees, including 600 pilots for its fleet of 30 Airbus A320 planes.
“Our businesses in Japan and India have been draining cash, causing the group much financial stress. Cost containment and reducing cash burns remain key priorities evident by the recent closure of AirAsia Japan and an ongoing review of our investment in AirAsia India,” AirAsia Bhd said in a recent statement reported by Mint.
The company, however, said that its focus would remain on the Asean region, where its operations are the strongest.
The Tata group also owns a controlling stake in Vistara, the full-service airline joint venture with Singapore Airlines.
AirAsia India, which began operations in 2014, has never reported an annual net profit despite being conservative with its growth plans.
AirAsia’s losses widened to ₹332 crore in the June quarter mainly due to the lockdown and travel curbs to contain the pandemic, sharply increasing from the ₹15.11 crore loss a year earlier.
AirAsia India Raked 5th
AirAsia India carried 370,000 passengers in October, achieving the fifth rank among six major commercial airlines in India with a 7.1% marketshare, according to the latest data from the Directorate General of Civil Aviation.
In comparison, market leader IndiGo, which had a 55.5% market share in October, carried 2.93 million passengers during the month.
Airlines in the Asia-Pacific region, including India and Malaysia, are the hardest hit by the novel coronavirus pandemic, with losses expected to be around $29 billion this year, according to industry lobby group International Air Transport Association.