Sunday, November 06, 2016

Up in the air

In his letter to Tata Sons’ board, Cyrus Mistry was particularly critical of the extreme fondness of the Group to keep investing in the airline industry and blew the whistle on a possible diversion of ₹22 crore in Air Asia.

Early in 2013, the Tata decided to enter a joint venture called Air Asia with an investment of $9 million. A few months later in 2013, they decided to take a 51 per cent stake in another JV which is now Air Vistara. Mistry claims he was against these ventures but he had no powers to stop them from being entered into.

He probably missed a trick by putting down his objections against the airline ventures in writing to the Board. One of the best methods to prove one’s independence when questioned is to produce an authentic document that corroborates the stand taken. It is possible that these ventures happened when he was still wetting his feet in the role of chairman but independence does not give anyone the benefit of time. The affinity (which borders on weakness) that the Tatas have for the airline sector is nothing new — JRD Tata commenced Tata Airlines (now Air India) in 1932 and flew the first plane himself.

The only reason that can be attributed to their desire to have an investment in two airline ventures is that they wanted to be a player in both segments of the market —Air Asia is predominantly a low-cost carrier ( Average fare of ₹3,138 in the April-June 2016 quarter) while Vistara seems to want to cater to the traveller who doesn’t necessarily look at price while booking his ticket.
6/11/16 Mohan Lavi/Business Line