Sunday, July 19, 2020

How AirAsia Bhd cashed in even as JV with Tatas flew into the red

Bengaluru: AirAsia India is struggling to achieve a turnaround, having posted profits only for a single quarter since it began operations six years ago.
However, AirAsia Berhad, a joint venture partner in the airline, seems to have recovered its entire investment in it through higher leasing charges and royalty payments. On the other hand, Tata Sons, the other JV partner with a 51 per cent stake, has so far made no money out of it. Each of the two partners had invested ₹750 crore as equity. The total equity injection into the airline is ₹1,500 crore while the authorised capital of the JV is ₹2,500 crore.
AirAsia Berhad has received cash flows of about ₹1,055 crore from the Indian venture as lease rentals paid to one of its associate companies and for a host of other services and charges such as brand royalty. Sources said AirAsia India is learnt to have paid a higher rent than prevailing market rates.
A questionnaire sent to AirAsia Berhad remained unanswered.
The lease rentals were being paid to an associate of AirAsia Berhad, leasing firm Asia Aviation Capital, till 2018-19, after which the subsidiary was sold off. The aircraft were leased to AirAsia’s ventures by the leasing firm and the revenue recorded by AirAsia Berhad.
For the quarter ended March 2020, AirAsia India posted a total loss of ₹334.6 crore, against ₹152.17 crore loss for the same period the previous year.
The company attributed the widening of losses to higher operating expenses after the induction of 10 more aircraft.
AirAsia Berhad itself has been going through a turbulent time, with its CEO, Tony Fernandes, stating that there is always a possibility of the Indian venture being let go as India is a peripheral market for the airline. In a call with analysts, Fernandes said while the market is currently growing and committed, “we would never say that we would never exit India.”
According to a Reuters report, Hong-Kong-based analyst firm GMT Research had, in a recent note, questioned AirAsia Berhad’s accounting practices, accusing it of using transactions with associate companies to boost its earnings.
19/07/20 K Giriprakash/Business Line
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