Tata Group Gears up for a Bigger Play in the Aviation Business by Raising its Stake in AirAsia India
By: Ashwathy Nair
- Tata Group buying out a part of its Malaysian partner AirAsia Bhd’s shares.
- The decision is expected to be taken by March-end to get more clarity on Tata’s bid for Air India.
- The final decision depends upon Air Asia that will it continue as a minority investor.
Tata Group is all set to play bigger in the aviation business by raising its stake for a merger of budget airline AirAsia India along with full-service carrier Vistara being among the options to be considered by Tata Group.
The salt-to-software company has come up with a strategy team, which is headed by Saurabh Agrawal, the chief financial officer of Tata Sons Pvt. Ltd. in order to explore options that include mergers, consolidation and rebranding of its airline ventures.
An expression of interest was placed by Tata Group, which recently made an announcement of its decision to raise its stake in AirAsia India to 84 per cent by taking over a part of its Malaysian partner AirAsia Bhd’s shares.
A decision on the way forward with AirAsia India is expected to be taken by the end of March when more clarification on Tata’s offer for Air India is likely to be available.
“A final decision in this regard depends on whether or not AirAsia remains a minority investor in the airline. If AirAsia Bhd continues to invest in AirAsia India, the Tata group may not be obliged to pay a royalty for the use of the brand name, which is a key factor.”
With the rest held by (SIA) Singapore Airlines, 51 per cent of Vistara is owned by Tata Group. Meanwhile, Tata Sons have the option to increase its stake to 100 per cent in AirAsia India under the share-purchase agreement with AirAsia Bhd. However, if Tata Sons does not close the deal to first purchase the 32.67 per cent additional stake in AirAsia India by March-end, the pact will be terminated.
A potential merger of AirAsia India with Vistara is all set to operate a single airline under the Vistara brands would be requiring the consent of SIA. “A merger of AirAsia India with Vistara is depended on many factors, which include improvement in load factor, cash flows, vaccination, travel restrictions and global lockdown, consent of Singapore Airlines, the proposed deal with Air India, completion of aircraft orders that are pending and competition from other Indian airlines. If this succeeds, there will be several sectors that will open up for flying, thus, would improve cash flows for AirAsia India.”
The option of merging AirAsia India, Vistara and Air India is being examined by the Tata Group, if it succeeds in the bid for the national carrier, and run them under a new brand.
“The Air India deal would rely on the government because it can handle a large part of the debt of the airline. If the government maintains conditions that include keeping the brand name of Air India intact for some time.”
Tata Group will either continue to operate Air India separately or merge AirAsia India with Air India if the airline companies are not merged. It may also run Air India separately and, with the consent of SIA, Vistara will be merged with AirAsia India under one entity.