The future of AirAsia India now depends on the Tata group, which is reportedly weighing various options.

AirAsia is facing a severe fund crunch
Money Aviation Wednesday, October 07, 2020 - 14:42

AirAsia India’s parent company AirAsia Group Bhd has reportedly stopped funding the Indian arm as the airline struggles with a cash crunch and liquidity issues, Bloomberg reported. AirAsia India has reportedly been funded only by the Tatas so far.

As per reports, the future of the airline in India would depend on Tata Group.

AirAsia India is a joint venture between the Tata group and Malaysia-based AirAsia Berhad. The Tatas own 51% stake while 49% is with AirAsia Bhd.

While Bloomberg reported that AirAsia India isn’t at an immediate risk of shutting down, Aviation Minister Hardeep Singh Puri said last week that AirAsia India was shutting shop because the parent company has problems.

Trouble at AirAsia

On Tuesday, AirAsia Bhd, which hasn’t seen profits since 2014, unveiled a restructuring plan as the airline faces headwinds with the COVID-19 pandemic battering the aviation industry globally.

It said in a statement that AirAsia is facing severe liquidity constraints and that travel and border restrictions have grounded all scheduled flights, and there is no imminent return to normalcy. 

“An imminent default of contractual commitments will precipitate a potential liquidation of the airline. A major debt restructuring, and a renegotiation of its financial obligations are prerequisites for any raising of fresh equity which will be required to restart the airline,” it added.

The Malaysia-based airline will be looking at route network rationalisation, aircraft fleet right-sizing, cost base overhaul and workforce optimisation, to ensure a leaner and more sustainable business going forward.

In the January-March quarter of 2020, AirAsia Berhad reported a loss of $188 million, while the Indian arm recorded a loss of Rs 330 crore.

On Monday, it shut down its Japan operations.

The company also approached Tatas earlier to sell its stake in the Indian airline to Tata group.

Tata Group’s stand on AirAsia India

While the Tata group has not made any official announcement or commitment towards AirAsia India’s operations, reports suggest the Tata Group is looking at various options with regard to AirAsia India.

Business Standard reported on Wednesday that Tata Sons is looking to invest another Rs 300 crore via optionally convertible debentures (OCDs). Through this investment via OCDs, Tata Sons will be able to convert the debt into equity later, thus reducing AirAsia Berhad’s stake in the airline.

According to a Mint report, Tatas are also considering buying out AirAsia Bhd’s entire stake in AirAsia India or to bring in a private equity player to buy the stake.

With the Tata Group owning a majority stake, it also holds the rights to first refusal for any deal.

The Mint report also states that Tata Sons may also look at bringing in an investor to buy both Tata group’s and AirAsia Bhd’s stake. However, this is unlikely, given the current state of the aviation industry around the globe.

Tatas are also looking at an option of possibly merging AirAsia and Vistara. However, the Mint report states that merger of a loss-making airline’s business with well-capitalised Vistara could weaken the merged entity, and something Singapore Airlines may not agree to.

Vistara is a joint venture between Tata Sons and Singapore Airlines.

It is also pertinent to note that Tata group is also considering bidding for India’s beleaguered national carrier Air India, which it confirmed in August. It said that it was evaluating a proposal and doing due diligence.

The Tata Group has begun due diligence on beleaguered national carrier Air India and may make a formal bid close to the official deadline at the end of this month. The focus at the moment is to examine business synergies and viability, it is learnt.

However, Tata’s aviation ambitions could see challenges. One is that the aviation industry has been one of the worst hit globally and is likely to take time to recover.

On the other hand, Tata Sons need to also mobilise funds to buy out Shapoorji Pallonji Group, which holds 18.4% stake. The SP Group has pegged its shareholding in Tata Sons at Rs 1,78,459 crore. Tata now faces a mammoth task of gathering funds to buy out SP Group’s stake, which may leave it with lack of capital to fund its aviation ambitions. 

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