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Tata vs Mistry: Shapoorji Pallonji Group's comment on Tata's aviation business may have touched a nerve, but is it correct?

Both Vistara and AirAsia India are yet to report profits. But is it fair to single them out?

September 23, 2020 / 03:08 PM IST
Two years after AirAsia India took to the skies, Vistara began operating, from January 2015.

Two years after AirAsia India took to the skies, Vistara began operating, from January 2015.

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There is little doubt that despite being the chairman of Tata Sons at the time, Cyrus Mistry had little to do with the launch of AirAsia India, which had its maiden flight in June 2014.

From the beginning of the venture, AirAsia founder Tony Fernandes was in touch with Ratan Tata. In December 2014, Tata even flew Fernandes in a business jet to Delhi to meet government officials. It was after Fernandes met Mistry at Bombay House, the Tata headquarters.

It may just be a coincidence, but ever since Mistry was booted out of his corner office at Bombay House in 2016, the aviation business has found prominent mention in his statements and legal suits. Even on September 22, when the Shapoorji Pallonji Group talked about separating from the Tatas, the statement mentioned the aviation business.

It said: "Be it the operations of Tata Steel UK, where over the last three years alone the operational losses have increased by an additional Rs 11,000 crore, or the group’s aviation businesses. These actions, or lack thereof, have meant that the total debt in the major Tata group companies has increased by approximately Rs 100,000 crore in the last three years. Excluding Tata Consultancy Services (TCS), the last quarters losses of all the listed group companies of approximately Rs 14,000 crore cause great concern."

The statement is right in pointing out the losses incurred by the Tata group's aviation business, which also includes Vistara, the joint venture with Singapore Airlines.


But is it a fair conclusion?

Increasing losses

Two years after AirAsia India took to the skies, Vistara began operating, from January 2015. Since then, it has become popular for its full-service, especially after the grounding of the only other private airline that also provided similar amenities to customers, Jet Airways.

While these two airlines give the Tata group a presence across the aviation segments, their financial performances have been a cause of worry. Neither of the airlines has yet reported net profit for a quarter, or for a year.

AirAsia India came close, when in the June quarter of FY20, it recorded a positive operating profit or earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 112 crore. The better showing helped it pare down its losses too.

Vistara too, in its five years, has reported improved performances. For instance in FY18, the airline managed to reduce losses to Rs 431 crore, from Rs 518 crore a year earlier. But it's still far from reporting profits, though in 2016, it had aimed to turn green by FY20.

Its losses have also increased since then. In FY20, Vistara's pre-tax loss increased to Rs 1,814 crore, said a report in Business Standard. This is despite a 54 percent jump in revenue to Rs 4,738 crore.

Likewise, AirAsia India's losses jumped to Rs 332 crore in the June quarter this year, from Rs 15.1 crore in the same period last financial year.

But is it fair to single out the two airlines when the rest of the industry, including the largest player IndiGo, are facing similar challenges?

An industry problem

Only two of the domestic airlines are listed, IndiGo and SpiceJet. But it won't be a stretch to say that, just like these two carriers, all the airlines in the market are in the red, at the moment.

IndiGo reported a net loss of Rs 2,844.3 crore for the quarter ended June 2020 as the coronavirus-led lockdown impacted operations. Net profit in the same period last year stood at Rs 1,203.1 crore. Revenue from operations at Rs 766.7 crore declined sharply by 91.9 percent against a 90.9 percent drop in capacity.

Similarly, SpiceJet posted consolidated net loss at Rs 600.5 crore for the quarter ended June 2020 as flight operations remained suspended for most part of the quarter following the nationwide lockdown. The company had reported consolidated profit at Rs 262.8 crore in the same period last year. Consolidated revenue from operations fell significantly by 82.6 percent year-on-year to Rs 521 crore in Q1FY21.

Going by the numbers, it is clear that all airlines at present are facing a financial squeeze. In fact, both, Vistara and AirAsia India have improved upon their market shares since the COVID-19 pandemic, mostly at the expense of GoAir.

But that may not be enough to give them a tick mark. Market shares may still change as airlines slowly increase their capacity. And in the case of AirAsia India, it doesn't help that there is constant question on whether Tony Fernandes is as bullish about the Indian market as he was when he first got in touch with Ratan Tata many years ago.
Prince Mathews Thomas heads the corporate bureau of Moneycontrol. He has been covering the business world for 16 years, having worked in The Hindu Business Line, Forbes India, Dow Jones Newswires, The Economic Times, Business Standard and The Week. A Chevening scholar, Prince has also authored The Consolidators, a book on second generation entrepreneurs.

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