The Tatas have raised their stake in AirAsia India to 83.67 per cent amid the salt-to-software conglomerate submitting an expression of interest (EoI) for national carrier Air India.
Tata Sons is buying an additional 32.67 per cent held by AirAsia Berhad of Malaysia in its domestic joint venture-AirAsia India for $37.7 million.
In January this year, the Centre had invited bids to sell 100 per cent of its holding in Air India and its international arm Air India Express and 50 per cent in ground handling joint venture Air India SATS Airport Services.
The government will announce the names of the qualified bidders on January 5, 2021, amid speculation the Tatas may use AirAsia India as the vehicle for investing in Air India.
In a regulatory filing to the Malaysian stock exchange, the AirAsia group said its wholly owned subsidiary Air Asia Investment Limited (AAIL) has executed a share purchase agreement with Tata Sons Private Limited to sell AAIL’s equity interest of 32.67 per cent in AirAsia India, comprising 490,000,000 shares to Tata Sons for a consideration of $37.6 million.
It further disclosed that as part of the transaction, there will be a call option in respect of AAIL’s remaining 16.33 per cent stake in Air Asia India. This will be exercisable by Tata Sons at any time after the transaction is completed. Tata Sons will have to pay $18.83 million for the 16.33 per cent stake.
Explaining the rationale for the transaction, AirAsia Group said that since the start of the Covid-19 pandemic, the aviation industry has been one of the hardest hit industries. Airlines globally have cancelled flights and grounded planes and Air Asia India has not been any exception.
“Due to this, the directors expect further capital requirements for AirAsia India. As India is a non-core market for AirAsia (being a non-Asean country), the company will continue to regularly re-assess its business strategies and dispose of non-core investments to augment its liquidity,” AirAsia Group said.
“This transaction will reduce cash burn of the company in the short term and allow AirAsia to concentrate on recovery of its key Asean markets in Malaysia, Thailand, Indonesia and the Philippines in the long run.’’
The Malaysian company further disclosed that the proposed disposal will result in a gain of $37.66 million in the fourth quarter of 2020 at both the AAIL and consolidated-group levels.
In six years in the country, AirAsia India has built a fleet of 32 aircraft, including two A320 neos that were inducted recently. In November, AirAsia Berhad had said it was reviewing its investment in AirAsia India.
“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,” president (airlines) of AirAsia Group, Bo Lingam, had said in a statement.
The group said it has also agreed to waive unpaid brand license fees payable by AirAsia India to subsidiary AirAsia Berhad.
The airline reported its fifth consecutive quarterly loss in the July-September period as the pandemic took its toll on travel.
Group chief executive officer Tony Fernandes had said the group intended to consolidate and strengthen its foothold in Southeast Asia, which could mean exiting both Japan and India.
Fernandes has said the company had disposed of spare engines to raise cash and was open to other potential monetisation opportunities.
AirAsia India started operations on domestic routes in June 2014 following the then UPA government allowing foreign airlines to invest up to 49 per cent in the Indian carriers.
“The share of losses over the years has resulted in the carrying value of the investment at the date of transaction to be Nil,” AAIL said in its filing in Malaysia.