Ex-CEO Mittu Chandilya challenges AirAsia brand-licensing deal

Even as a meeting of the Air Asia India board is expected on Tuesday, lawyers of former Air Asia India Chief Executive Officer (CEO) Mittu Chandilya say the brand-licensing agreement signed between Air Asia Berhad group CEO Tony Fernandes, representing the Indian joint venture, and T Kanagalingam, who was then chief operating officer of Air Asia Berhad, represents a “conflict of interest” because both held top positions in the same airline. 

The lawyers say Air Asia India needs to revoke the licensing agreement so that management control moves from Malaysia to India, as required by FDI guidelines. Under the FDI rules for aviation, while foreign carriers can hold up to 49 per cent in a joint venture, the management of the firm has to be in Indian hands. 

 

Srinivas Mohanty, Chandilya’s lawyer, points out: “There is a conflict of interest in the licensing agreement as the two signatories of the document are both from the same company — Air Asia Berhad. Both of them have become judges in their own cause. So any change in management control from Malaysia to India would require a revocation of this agreement. We will take up this matter up in court.” 

Emails to Air Asia Berhad and Air Asia India did not elicit any response. However, the board meeting is expected to discuss restructuring the management. The company has to appoint a CEO. 

Mohanty says based on the brand-licensing contract, signed in April 2013, the licensee (Air Asia India) had to observe and comply with the requirements to be determined by Air Asia in virtually all key areas. 

These include branding, engineering, finance, flight operations, marketing, network planning, revenue management, people, sales and distribution, and ancillary. The lawyer points out various clauses in the agreement showed how the airline was being controlled from Malaysia. Air Asia’s ancillary team has to first approve third-party providers of ancillary products and services. All in-flight products and services, not just food and beverages and pricing, have to be approved by the Air Asia group’s catering and in-flight services team.

All major engineering-related purchases or leasing contracts have to be on terms approved by the Air Asia group. Also aircraft parts have to come from the Air Asia group pooling of spares and will be managed again by the Air Asia group team. Also the Air Asia’s group chief executive officer has to approve annual budgets of the licensee. Their control on fares is reflected in the fact that that all fare classes, terms and conditions and prices would be set by the Air Asia group’s revenue management team. 

The licensee also has to provide Air Asia monthly management accounts as required by the Air Asia group’s finance team. AirAsia India had alleged that Chandilya was involved in alleged fraudulent transactions of Rs 220 million during his tenure, based on an audit report. According to Mohanty, these transactions were made on instructions of Fernandes.