The AirAsia Group Berhad on December 29 sold 32.67% of its stake in the Indian subsidiary to their joint venture partner Tata Sons for $37.66 million. Analysts believe that the Tata Group got a 20% discount on the airline’s value. One may argue that the prospects for airlines may have been hit by the pandemic, but on the other hand, the market value of Air Asia India’s peers like IndiGo and SpiceJet has doubled since the pandemic broke out in March.
Multiple factors may have played into the discount on Air Asia. “Either AirAsia has a significant amount of liabilities, which you know is yet not known since this year Covid has been a big impact on the airline sector. Second, the prospect of recovery which the Tatas see within AirAsia India might not be that great,” Ansuman Deb, a research Analyst at ICICI Securities said. The Malaysian parent was also desperate for some cash. While selling its stake AirAsia Group President (Airlines), Bo Lingam also highlighted that “this transaction is in line with our initiatives towards reducing cash utilisation for the Group and will allow us to use cash to grow market share in our core markets in Asean, particularly in Malaysia, Thailand, Indonesia and the Philippines as well as for our future expansion into Cambodia, Myanmar and Vietnam.”
More importantly, Air Asia wasn’t doing very well even before the pandemic. It has been making losses, and its balance sheet has never been strong. “In terms of operations also the airline barely has 6% market share. When it comes to flying internationally, they are not allowed to do so at this point of time, so there are a variety of reasons that led to this,” said another analyst.
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Air Asia India in 2018 was accused of bribery and violation of India's aviation laws, which the company refuted. There are other legal tangles that AirAsia India has been caught in, like, ownership undertakings to fly abroad to DGCA’s investigation on safety violations. The Tata Group wants to buy out India’s national carrier, Air India, and they planned to bid for it via Air Asia India. There are many within the ruling establishment in New Delhi and their political affiliates, who want Air India to be sold to an Indian company, and not to a foreign one.
The second phase of Air India’s strategic disinvestment will start on January 5, with the announcement of the names of the qualified bidders. According to the ICICI Securities report, “If Tatas successfully acquire Air India and consolidate Vistara and AirAsia India under its brand, the industry will convert from a 6 to 4 player industry comprising Tata group. IndiGo, SpiceJet and GoAir.”
