Despite what Civil Aviation Minister Hardeep Singh Puri would have one believe about AirAsia India shutting down, indications coming from Bombay House seem to suggest otherwise.
Tata Sons continues to be in talks with its joint venture (JV) partner AirAsia on the latter's imminent exit from the Indian market. The conglomerate's holding company may invest up to Rs 500 crore through optional convertible debentures, Business Standard reported. Also, AirAsia Berhad is said to have received an offer from an unnamed fund to buy its stake in the Indian airline JV.
Tata Sons holds 51 percent stake in the low-cost airline.
Separately, Moneycontrol has learnt that the airline's top management had sought out to reassure its vendors and partners that it's not shutting shop, as Puri had indicated in a comment that went viral. A senior executive from an aviation company that does business with AirAsia India said that the airline has reiterated that it continues to do business in India.
"AirAsia’s shop is anyway shutting down....Their parent company has problems," the minister had said. Later he took back his words.
While Tata Sons' intent to invest further money in AirAsia India will soothe frayed nerves, it is also clear that it is in a bind. "The Group is in a Catch-22 situation. While it will fight to save its investment, the fact is that AirAsia India has struggled," says a senior executive from the industry.
The larger question is - what options does the Tata Group have once AirAsia Berhad exits the JV?
"Tata Sons will retain the AOC, or the air operator's certificate, to run an airline. When it comes to the fleet, most of the aircraft are from AirAsia Berhad. But of late the Indian arm had begun to lease aircraft directly. So these will also remain," said an industry official.
AirAsia India has a fleet of 30 Airbus A320 planes.
But what happens to the brand? Some answers could come from AirAsia Berhad's experience in Japan, from where it recently announced its exit, for the second time.
The Japan experience AirAsia Japan first started operations in 2012, as a JV between the Malaysian parent and All Nippon Airways (ANA).
The JV lasted only a year, with AirAsia exiting the JV. Among the main reasons was the low load factors of AirAsia Japan amid a tight competition from other low-cost carriers.
ANA rebranded the airline into Vanilla Air, which later merged with Peach, another low-cost carrier owned by All Nippon Airways.
AirAsia re-launched AirAsia Japan in 2017, with new partners. Unfortunately, even this time the venture didn't last long. COVID-19 has forced the airline to again exit from the Japanese market. Interestingly, AirAsia Berhad will retain the licence to operate an airline in Japan. So, a third reincarnation can't be ruled out.
Relevance for India Tata Sons has the same option that ANA did. Once AirAsia exits India, Tata Sons can retain the airline, rename it and continue operating the airline, possibly with new partners.
The question is, how much more money can it keep putting in a company that hasn't turned a profit since it started flying in 2014. AirAsia India's losses jumped to Rs 332 crore in the June quarter from Rs 15.1 crore in the same period last fiscal.
Does it have the option to merge AirAsia India with Vistara, just like ANA did with AirAsia Japan and Peach?
There are two big hurdles. Despite both AirAsia India and Vistara sharing a common fleet make in the A320s - which make up for most of the latter's planes that also include a Boeing aircraft - the two airlines offer differing products. While one offers no-frills service, the other champions gourmet food, entertainment and style.
Can the two merge?
The second challenge would come in the form of Singapore Airlines, the JV partner in Vistara. There is little to indicate that Singapore Airlines will warm up to the idea. "It is too soon to say. But there is nothing to indicate that it will not consider merger of some resources, wherever relevant, belonging to AirAsia India," says a senior official from an international airline with considerable presence in India.
Given the complications, Tata Sons has some tough decisions to make that will shape its aviation business in India. This is especially because both the airlines continue to struggle in their fight for larger share of the Indian aviation market. While AirAsia India has a share of 6.8 percent, Vistara has 5.8 percent of the pie. And amid all this, it has also shown in Air India.
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