Wednesday, October 07, 2020

AirAsia stops funding Indian arm, leaves fate of airline in Tata’s hands

AirAsia India’s parent company AirAsia Group Bhd has reportedly stopped funding the Indian arm as the airline struggles with a cash crunch and liquidity issues, Bloomberg reported. AirAsia India has reportedly been funded only by the Tatas so far.

As per reports, the future of the airline in India would depend on Tata Group.

AirAsia India is a joint venture between the Tata group and Malaysia-based AirAsia Berhad. The Tatas own 51% stake while 49% is with AirAsia Bhd.

While Bloomberg reported that AirAsia India isn’t at an immediate risk of shutting down, Aviation Minister Hardeep Singh Puri said last week that AirAsia India was shutting shop because the parent company has problems.

On Tuesday, AirAsia Bhd, which hasn’t seen profits since 2014, unveiled a restructuring plan as the airline faces headwinds with the COVID-19 pandemic battering the aviation industry globally.

It said in a statement that AirAsia is facing severe liquidity constraints and that travel and border restrictions have grounded all scheduled flights, and there is no imminent return to normalcy. 

“An imminent default of contractual commitments will precipitate a potential liquidation of the airline. A major debt restructuring, and a renegotiation of its financial obligations are prerequisites for any raising of fresh equity which will be required to restart the airline,” it added.

The Malaysia-based airline will be looking at route network rationalisation, aircraft fleet right-sizing, cost base overhaul and workforce optimisation, to ensure a leaner and more sustainable business going forward.

While the Tata group has not made any official announcement or commitment towards AirAsia India’s operations, reports suggest the Tata Group is looking at various options with regard to AirAsia India.

Business Standard reported on Wednesday that Tata Sons is looking to invest another Rs 300 crore via optionally convertible debentures (OCDs). Through this investment via OCDs, Tata Sons will be able to convert the debt into equity later, thus reducing AirAsia Berhad’s stake in the airline.

According to a Mint report, Tatas are also considering buying out AirAsia Bhd’s entire stake in AirAsia India or to bring in a private equity player to buy the stake.

With the Tata Group owning a majority stake, it also holds the rights to first refusal for any deal.

The Mint report also states that Tata Sons may also look at bringing in an investor to buy both Tata group’s and AirAsia Bhd’s stake. However, this is unlikely, given the current state of the aviation industry around the globe.

07/10/20 News Minute

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