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Tata Sons to raise stake in AirAsia India

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by March 29, 2016 General

To buy shares of Arun Bhatia’s Telestra, which will be exiting the airline company

ata Sons Ltd has agreed to increase its stake in AirAsia (India) Ltd to 49 per cent from 41.06 per cent for an unspecified amount, indicating its commitment to the low-cost airline business model and providing an exit route to one of the investors.

Tata Sons on Monday said it has entered into an agreement with Telestra Tradeplace Pvt Ltd, controlled by Delhi-based businessman Arun Bhatia, to acquire a 7.94 per cent stake to increase its holding.

Two of AirAsia India’s directors — Chairman S Ramadorai (formerly Vice-Chairman of Tata Consultancy Services) and R Venkataramanan, trustee, Tata Trusts — have agreed to acquire 0.5 per cent and 1.5 per cent shareholding respectively from Telestra in their individual capacity. With this, Telestra will exit the venture. It was among the founding investors when the airline company was formed in early 2013. Then, Telestra had 21 per cent stake in the airline company while the Tatas had 30 per cent.

‘A positive development’

AirAsia Investment Ltd will continue to hold 49 per cent stake in the company. “The agreement was entered into on March 14, 2016, and the transaction is proposed to be completed in April 2016, subject to completion of the relevant corporate approvals and processes,” Tata Sons said in a statement on Monday.

Mr Bhatia was reportedly not too keen to stay invested in the company as the company has been incurring losses from the beginning. In a tweet, Tony Fernandes, CEO, AirAsia Bhd said, “Great to see Tata and board members so confident on the future of AirAsia India. I am thrilled.”

Commenting on the development, Amber Dubey, Partner & India Head of Aerospace & Defence at KPMG said, “It is a positive development. This shows the long-term commitment of the Tata Group towards the low-cost carrier venture.” With the New Civil Aviation Policy 2016 likely to be released soon and a new look management team in place, things are looking up for AirAsia India, Mr Dubey said.

Recently, AirAsia India had announced the appointment of Amar Abrol as its new CEO. He replaced Mittu Chandilya, who was heading the airline’s operations since its inception. AirAsia India has a fleet of six Airbus A320 aircraft and has a domestic market share of 2.2 per cent (as of February 2016).

The low-cost airline started commercial operation in June 2014. With this, the Tatas reentered the civil aviation sector after a 68-year gap. Their Tata Airlines was nationalised in 1946 and renamed Air India. In the 1990s, the Tatas had attempted to reenter this sector but were unsuccessful.

So in 2012, when the government liberalised norms in the civil aviation sector and allowed foreign airlines to invest up to 49 per cent in Indian carriers, the Tatas announced their intention to start a low-cost airline with AirAsia Bhd and Telestra as partners.

In 2013, they also applied for permission to start another airline company called Tata SIA Airlines Ltd in a joint venture with Singapore Airlines. This full-service carrier named Vistara has been offering services since January 2015.

The Tatas and their partners have been advocating permission for their new airlines to fly abroad without completing the mandatory five years of domestic flying experience with a fleet of 20 aircraft. They have come up against steep opposition from incumbent airlines who have gone through this pain before flying on international routes.

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