AirAsia India opts for leasing via tender route

Airline has called a competitive bidding process for the 8 new aircraft it wants to add this year

AirAsia India has started to rectify some of the controversial related-party transactions, that had led to allegations of mismanagement and preferential treatment towards parent AirAsia Malaysia. To begin with, the company is following a competitive tender process for leasing and maintenance of aircraft.

Till now, most of these transactions were being carried out with the carrier’s Malaysian parent, and in many instances, it paid higher than market rates, thereby adversely impacting financials. 

According to the minutes of recent board meetings, reviewed by Business Standard, the airline has called a competitive bidding process for the eight new aircraft it wants to add this year. 

Dublin-based leasing firm Avolon Aerospace Leasing Limited has been given the contract of delivering these by August 2017 at Rs 2 crore per plane per month. “Avolon Aerospace was preferred as they had agreed to a lower deposit amount in comparison to the prevailing market rate and a letter of intent was to be entered between the two parties,” according to the minutes.

The low-cost airline, with ambitious expansion plans, has eight aircraft till now. It’s planning to add another eight by 2017. Of the current eight, seven have been leased from the parent firm’s leasing unit. For instance, its newest aircraft VT-PNQ which joined the fleet in October 2016 is a 10-year-old machine leased from AirAsia Bhd. “AirAsia India was at a disadvantage, leasing planes from a particular player. Those were old aircraft leased at least 20 per cent higher than market price. If sanity has prevailed and it is following a competitive process, good for the airline,” said a finance head of a domestic airline.

In response to a detailed query, sent by the paper, an AirAsia spokesperson said, ‘’all decisions concerning procurement and signing of third party vendors are carried out in a systematic fashion. Proposals are evaluated and decisions are made in accordance to the management.’’

The airline paid Rs 179 crore as lease charges and Rs 10.5 crore in FY 16, making up for almost 80 per cent of the total expenditure of Rs 236.9 crore, according to the airline’s annual report. 

At the centre of it all has been a controversial brand licensing agreement with Malaysia-based AirAsia Bhd, which mandates a preference to AirAsia group companies for leasing aircraft. The arrangement was opposed by a few board members and also led to an exodus of some senior executives from the airline. In March 2014, ex-board member Bharat Vasani wrote to the Tata Sons board voicing concern over the import of aircraft from the Malaysian unit.

“I have no means to verify the commercial terms or whether the terms of lease are in the interest of AirAsia India,” Vasani wrote.

Additionally, the airline executives from India are being given a greater say in crucial financial decisions and day to day functioning of the company. According to recent transcripts of board meetings, the AirAsia board has given CEO Amar Abrol and CFO Ankur Khanna space to take crucial financial decisions.

Changing times

• Indian executives are are getting say in day-to-day functioning of the firm
• Controversial related- party transactions have dogged the airline in the past, with many questioning it
• Under an agreement with AirAsia Bhd, the airline has to give preference to AirAsia companies while outsourcing operations