Tatas 'inches closer' to bid for Air India, but will bribe charges against Tony Fernandes ruin its plans?

Tatas exploring two-pronged strategy to buy Air India, which it founded 87 years ago


The Tata Group is a step closer to bidding for India's national carrier Air India, which it founded 87 years ago. According to a report by TOI, the Tata Group is actively exploring a structure for Air India acquisition with Singapore Airlines, its joint venture partner in Vistara. 

However, to make way for the pricier acquisition of the Maharaja, the salt-to-steel conglomerate has reportedly proposed merging AirAsia India, in which it holds 51 per cent stake, with Air India's wholly-owned subsidiary, Air India Express, a low-cost airline headquartered in Kochi. The company is reported to have approached AirAsia founder Tony Fernandes, who holds the rest 49 per cent stake in AirAsia India, with the proposal. According to the shareholders' agreement in AirAsia India, the Tatas cannot invest more than 10 per cent in another budget airline without Fernandes being willing to waive the covenant.

Hence, if the Tatas wishes to bid for Air India, a new agreement is expected to be soon signed between Fernandes and the Tatas. In lieu of the waiver, the Tatas have proposed to combine AirAsia India and AI Express. “The merger will give Fernandes a bigger play in Indian aviation; so, it’s a win-win for both partners,” said the TOI report, citing a person with knowledge of the discussions. AirAsia India has been waiting to get government nod to fly overseas. AI Express flies to over 33 destinations with over 649 services a week to the Gulf countries. 

The combination of Air India and Vistara, on the other hand, will help the Tatas to monopolise the full-service space in India. With the two-pronged strategy to acquire Air India, the Tatas aims to up its ante in the aviation business that it had pioneered in the country. In India, Air India holds the highest number of slots, routes and real estate, which makes it a prize catch for any bidder. And hence, Air India acquisition would be a sure shot way for Vistara to expand its business.

The last day to file an Expression of Interest for Air India is March 17.

Will probes against AirAsia prove costly for Tatas?

The AirAsia India-AI Express merger route is crucial for the Tatas if it intends to buy Air India. This was almost indicated by Tata Sons Chairman N. Chandrasekaran, in November last year.  “I’m not going to run a third airline. Unless we merge," he was quoted in an interview then.

However, the TOI report comes on a day when AirAsia CEO Tony Fernandes has stepped aside from the company as Malaysia's Anti-Corruption Commission, working alongside Britain's Serious Fraud Office (SFO), is probing the airline in a case of bribery. The SFO has released details of a probe that found individuals associated with the planemaker had paid to secure deals with AirAsia and its long-haul unit AirAsia X. Two other agencies in Malaysia, including the aviation agency and the Security Commission, reportedly also have started their own probe.

Fernandes, however, has categorically denied "any and all allegations of wrongdoing or misconduct" in the conduct of business at AirAsia.

Meanwhile, in India too, Fernandes has run into trouble with the Enforcement Directorate summoning him and other top executives of Malaysia-based AirAsia Bhd as well as R. Venkataramanan, former director of AirAsia India, over allegations of money laundering. Reportedly, Fernandes has been summoned on Wednesday, while Venkataramanan has been asked to appear before ED on February 10. He stepped down as managing trustee of the Tata Trusts in March last year and later exited AirAsia India. The airline has previously denied any wrongdoing. 

The CBI, too, are investigating Fernandes and other top managers of AirAsia on charges of criminal conspiracy under the Prevention of Corruption Act. The CBI alleges that a conspiracy was hatched to get the erstwhile 5/20 rule amended during the second term (2009-14) of the Congress-led United Progressive Alliance (UPA) government. At the time, Indian carriers could only fly overseas if they had been operating for five years and had 20 planes. The 5/20 rule was relaxed in June 2016, scrapping the five-year requirement.

It is alleged that AirAsia India Ltd was indirectly controlled and operated by AirAsia, Bhd, violating existing various norms of erstwhile Foreign Investment Promotion Board (FIPB), now defunct. 

The CBI has said that AirAsia applied to the FIPB in February 2013 and received formal approval in April 2013, despite irregularities in its application. The FIPB ignored the violation of foreign direct investment (FDI) norms, as AirAsia India was indirectly controlled and operated by the Malaysia-based AirAsia. The rules stipulate that domestic carriers have to be controlled locally.

"The said arrangement (company structure) was formalised on April 17, 2013, indirectly making AirAsia India a “de-facto subsidiary rather than a joint venture,” CBI said. However, the company denied the accusations in a 2018 press statement.