The COVID-19 pandemic has thrown the global aviation industry into a turbulence as countries imposed lockdowns and travel and tourism reduced drastically. In this backdrop, Malaysian low-cost airline AirAsia has announced a massive restructuring exercise at its long-haul subsidiary AirAsia X; the group is ceasing operations of AirAsia Japan and reportedly, it is also stopping funding to AirAsia India, a joint venture it has had with the Tata Group, since 2014.
“AirAsia X is facing severe liquidity constraints. 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,” AirAsia X announced.
Therefore, AirAsia X has proposed a debt settlement and waiver of debts involving unsecured creditors, that it says would enable the group to address its debt obligations in an orderly manner and to arrive at a debt structure that is sustainable from future operating cash flows. At the same time, it aims to rationalise its network, “right size” its fleet and optimise its workforce.
Separately, AirAsia Japan (AAJ) is stopping its operations immediately.
“This would reduce the cash burn of AAJ and the company amid the highly challenging operating conditions in Japan which have been aggravated by the COVID-19 pandemic that has plagued the world since early this year,” it said.
AirAsia India began operations on June 12, 2014. However, in the last six years, it has not been able to make a huge dent in the market dominated by Indigo and SpiceJet. AirAsia India airline is yet to make a profit, too.
In March 2020, AirAsia India had a market share of 7.6 per cent, compared with Indigo’s market share of 48.9 per cent, SpiceJet’s 16 per cent and Go Air’s 9.9 per cent, according to the Directorate General of Civil Aviation (DGCA). In August, AirAsia India’s market share had come down to 6.8 per cent, while Indigo and SpiceJet had a market share of 59.4 per cent and 13.8 per cent respectively.
According to a Bloomberg report, AirAsia has stopped funding AirAsia India and it is now up to Tata, which holds 51 per cent stake in AirAsia India to rescue the airline.
Tata Group is raising debt worth Rs 300 crore in AirAsia India, which should help in the near-term. It is reportedly exploring options on how much funds would be required to buyout the AirAsia stake in the venture.
But, buying out AirAsia would require Tata to spend a lot of money, at a time they would need funds to buy out the Shapoorji Pallonji Group’s stake in Tata Sons. The SP Group had recently told the Supreme Court that it wanted to exit from Tata Sons.
The other option is that AirAsia’s stake in the venture could be sold to another investor, strategic or financial. However, in the wake of continued COVID-19-related uncertainties, that wouldn’t be easy either. Reports in July had suggested that Tata wanted to exit from AirAsia India joint venture.
Tata also operates a full-service airline Vistara in venture with Singapore Airlines.
A spokesperson for the Tata Group declined to comment to an email sent on Wednesday. AirAsia or its owner Tony Fernandes too, haven’t commented officially to the media reports about AirAsia India.
