Tatas to get full control of AirAsia India after licensing deal amendment

Tata Sons holds 51 per cent stake in AirAsia India, while AirAsia Berhad holds the remaining 49 per cent

Tata Sons and AirAsia Berhad have agreed to amend a controversial brand licensing agreement that gave control of crucial functions to the Malaysian parent. The agreement signed between the two firms in 2013 — which gave the airline the right to use the AirAsia brand — has been mired in controversy as key decisions needed approval from the parent.
 
This raised concerns that the daily management was being handled by foreign nationals. India’s civil aviation regulations mandate the effective control of airlines jointly owned by Indian and foreign entities lie with the Indian firm.
 
Tata Sons holds 51 per cent in AirAsia India, while AirAsia Berhad holds the remaining 49 per cent.
 
People in the know said both entities were finalising the revised agreement. A draft agreement submitted to the Ministry of Civil Aviation and reviewed by Business Standard says that sales and distribution, revenue management, network planning, catering and in-flight services, finance and corporate finance, customer experience, engineering, and leasing contracts will now be under the sole discretion of AirAsia India.
 
These require approval from the parent under the present agreement. A spokesperson of AirAsia Berhad directed the queries to the Indian unit, but the AirAsia India spokesperson refused to comment. AirAsia Berhad has similar agreements with the other three affiliates — Thai AirAsia, Philippines AirAsia, and Indonesia AirAsia.
 
These, along with AirAsia India, pay annual fees for using the AirAsia brand.
 
The Tatas have already appointed key executives from its group firms in Air Asia India. In 2018, it appointed Tata lifer Sunil Bhaskaran as chief executive.
 
Last month, it appointed Titan’s Vikas Agarwal as chief financial officer. Recently, it appointed Tata Steel executive Ranganathan R advisor to the CEO.
 

The airline has also restructured its board, with AirAsia group CEO Tony Fernandes and deputy group CEO Bo Lingam stepping down. Banmali Agrawala, head of Tata group’s defence and aerospace business, was appointed chairman. A Tata group executive said the airline has developed the expertise to handle core operations from India, and hence was not dependent on its parent anymore. “Earlier, a lot of core functions such as revenue management, sales, and leasing needed expertise of the joint venture partner, but now the airline is fully capable of handling the functions,” the executive said.
 
The commercial unit now has a full-fledged office at Gurugram and has established a crew training unit at Bengaluru. Recently, it appointed former IndiGo executive Ankur Garg as chief commercial officer.
 
People in the know said the Tatas sought the amendment after being nudged by the aviation ministry, which is yet to give its nod for the airline’s foreign operations.
 
“The government has told the Tatas that if the airline wants foreign flying rights, the agreement has to be amended to reflect that the operations are being handled from India. They don’t want anyone to challenge it in court after granting of the permission,” said an AirAsia India board member.
 
The Delhi High Court had also ordered an investigation by the Directorate General of Civil Aviation (DGCA) in 2017, following which the DGCA had given it a clean chit.
 
The Central Bureau of Investigation (CBI) had, on May 29, raided the offices of AirAsia India. This was after it had filed a complaint against Tony Fernandes and others on May 28 for allegedly lobbying with the government for overseas flight permits and violating rules preventing foreign airlines from controlling Indian operators. Despite having more than 20 aircraft, the carrier is waiting for permission to fly abroad as government officials remain cautious on the control norms.
 
“Foreign flying is the ultimate source of revenue generation. The airline has already missed out on getting any of Jet Airways’ flying rights due to the controversy. Tata Group taking control will clear the air,” the board member said.
 
Tata Group’s other airline Vistara — a joint venture with Singapore Airlines — had to get its foreign flying rights vetted by a group of ministers. CBI’s first information report (FIR) says the violations occurred from 2013-2016, before the government eased restrictions on airlines starting overseas flights, in June 2016.