Malaysian budget airline AirAsia Group will sell 32.67 percent of its stake in its Indian operations to Tata Sons for $37.7 million, sources from the industry confirmed to Moneycontrol.
Tata sons will hold 83.67 percent stake post the deal, while Malaysian carrier AirAsia's stake will be squeezed to approximately 13 percent stake. AirAsia has taken the decision in the wake of the financial loss amid the COVID-19 pandemic.
The development coincides with the deadline to submit a physical bid for Air India. The deadline gets over on December 29. Industry sources have said that the Tatas may use AirAsia India as the vehicle for Air India investment, and it was important to get approval from the Malaysian partner.
Air India's sale also includes its unit Air India Express, which competes with AirAsia.
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With Tata Sons taking over the operations of the private airliner and a majority stake, the salt-to-steel conglomerate has already started the process to have a separate website for AirAsia India. TCS is also involved in developing crew-scheduling software for the Tatas.
Earlier, Group CEO of AirAsia Tony Fernandes had stated that they are in the process of reviewing whether to invest in India operations or expand in ASEAN countries.
Tata Sons currently holds 51 percent stake in the airline, while AirAsia Investment Limited has a 49 percent stake. The airline commands a 7.1 percent share of the domestic civil aviation market.
Tata Sons spokesperson declined to comment.
AirAsia's statement
The Malaysian airline confirmed the stake sale in an announcement on local exchanges.
Explaining the rationale of its near-exit from a joint venture it had formed with much fanfare in 2014, the company said that it would have needed to put in more money into the Indian airline, which like its peers, was also reeling under the impact of COVID-19.
"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 Berhad said in a statement.
"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," it added.
Earlier this year, AirAsia had exited Japan on similar grounds.
Signalling that its investment in India had been a loss-making proposition, the company said, "The share of losses over the years have resulted in the carrying value of the investment at the date of transaction to be Nil."
AirAsia India's revenue dropped 69 percent in the September quarter. While its losses for the second quarter weren't disclosed, in the first, it went deeper in the red. Its losses zoomed to Rs 332 crore, from Rs 15 crore, a year earlier.
The transaction includes a call option that Tata Sons can exercise for AirAsia Berhad's remaining stake. Similarly, AirAsia India will have a put option, in two tranches. "The first tranche being exercisable from 1 March 2022 until 30 May 2022, and the second tranche being exercisable from 1 October 2022 to 31 December 2022. The total consideration in respect of the Options granted for AAIL’s remaining 16.33 percent stake shall be $18,830,000 (equivalent to approximately MYR76.29 million)," the airline said.
The Tatas' other interest in aviation is through Vistara, its joint venture with Singapore Airlines.
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