It has not even been 100 days since the takeover of Air India group by the Tatas, but things have started moving on the ground, beyond the optics. While the initial focus was on improving the soft product with the hard product requiring long-term work, Air India has moved the Competition Commission of India (CCI) to acquire AirAsia India.
AirAsia India is currently 83.67 percent owned by Tata Sons, with the rest being owned by AirAsia Bhd, which is to be acquired as well. AirAsia India has been full of controversies even before its start. Touted to break even within a year of operations, the airline has never made profits as it completes eight years of operations this June. From cases filed against the airline for issues leading to effective control with Indians to allegations of paying funds to suspects in controversial dealings, the airline has been in the news for all the wrong reasons.
After a couple of management changes, the Tata group took complete control and appointed personnel from its group companies without any aviation background in key positions. While this may have stopped further damage, the airline did not really take off in its true sense as promised by maverick AirAsia founder Tony Fernandes.
What does Air India buying AirAsia India mean?
The Tata group had formed a separate entity, Talace Private Limited, to bid for the Air India Group, including Air India Express, a wholly owned subsidiary of Air India Limited. Talace Private Limited now owns Air India. Tata Sons Private Limited owns Talace and also has an 83.67 percent stake in AirAsia India.
With this transaction, it appears that Air India Limited will acquire the 83.67 percent Tata Sons stake in AirAsia India and will subsequently acquire the remainder from AirAsia Bhd. This will only leave the 51 percent stake in Vistara, a joint venture between SIA Group and Tata Sons.
It wouldn’t be surprising if Tata Sons’ stake in Vistara is sold to Talace Private Limited, making it the owner of all the airline ventures of the group.
What next for AirAsia India?
While the CCI filing mentions that Air India intends to acquire AirAsia India, it looks there will be a consolidation of AirAsia India and Air India Express to have a low-cost entity that primarily operates to domestic destinations.
Indian rules mandate that airlines need to deploy 20 aircraft or 20 percent of their capacity by departures on domestic operations. Air India Express had been exempted from this as it was a government entity. Now that it is a private entity, the 20 percent rule will apply and that’s where AirAsia India’s domestic operations will come in handy.
The challenge will be in having a dual fleet, but until the fleet replacement plan becomes a reality, the two airlines — AirAsia India and Air India Express — can operate complimenting each other.
The future? Air India Express and Air India have worked in isolation all along. To have a large fleet of planes and not gel with each other is not the model the Tatas would want to have. Will all the airlines eventually be merged under a single Air Operating Permit with two different lines of service? A full service airline and a low-cost carrier, with Air India Express being the no-frills arm and Air India being the mainline one?
There are more questions than answers for now but the integration has started and it will need a juggernaut to complete the process. With the group losing money in two airlines and having two more in the fold, the drain is unending.
Why not merge the assets and sell the licence?
When Jet Airways was sliding, one of the options often discussed was selling the Air Operating Permit of Jetlite or the erstwhile Air Sahara to raise funds. Can the Tata group get some money by selling AirAsia India’s AOP? Akasa is likely to move from obtaining an NOC to getting its AOP within a year. For a speed like this, acquiring another AOP isn’t very attractive, especially in a case where the AOP has a lot of legacy issues and legal cases.
If the entity ceases to exist, the cases would go away soon, but they won’t if the entity continues to exist, be it with one owner or another. Besides, why welcome competition in a market that is already crowded.
Tail Note
The silver lining for AirAsia India is that it is not being left high and dry but being acquired by the Tatas, one way or the other.
But this marks the end for Tony Fernandes’ dream of having an airline in India. And that saga throws up many questions. Was it a golden opportunity that he squandered? Were the Tatas not diligent enough before signing the partnership? Does this entire eight-year history of losses give credence to the arguments made by Cyrus Mistry?
The aviation business is known to have changed the fortunes of many large groups, mostly for the worse, and the Tatas will be keenly aware of this fact.
