AirAsia India started operations in June 2014. The airline had everything going for it. The low-fare airline concept was well-known. It had the backing of AirAsia chief Tony Fernandes, and the wealth of experience that AirAsia Berhad brought with it. Almost all the systems, protocols and procedures of the parent airline were adopted. Moreover, oil prices were at a low and continued to fall.
However, the troubles started right from the outset. Two basic matters with regard to the grant of licence to the airline were questioned. First, Bharatiya Janata Party
(BJP) leader Subramanian Swamy, who moved the courts on this, argued that the licence itself was questionable since the foreign direct investment rules in India allowed investment in “existing” Indian carriers and not for the setting up of a new carrier. This matter has since been cleared up.
Second, the joint venture has been under the scanner for violating regulatory laws. Indian foreign direct investment (FDI) rules stipulate that both “substantial ownership” and “effective control” must rest in Indian hands. This rule was violated by the airline from the time of its launch in June 2014 till November 2018, when the Tatas brought in Sunil Bhaskaran to run it. To do this, the Tatas were forced to buy out the stake of Arun Bhatia, who was one of the partners in the joint venture. According to people familair with matter, Tata Sons
paid Bhatia twice the value of what he invested to buy him out.
Moreover, it didn’t help matters that the two CEOs whom Fernandes had brought in proved to be disastrous for the airline’s operations. Both Mittu Chandilya and Amar Abrol had little clue about how to run the airline, which was evident in almost every decision that AirAsia India took or failed to take.
The airline changed its hub even before it started its operations. Routes were haphazardly picked and abruptly dropped. Losses piled up quickly. It also had trouble retaining key people, and many treated it as a sort of a stop-gap arrangement while they looked for something more stable.
As if that weren’t enough, Chandilya, was allegedly involved in financial wrongdoing on a personal level (he is currently under investigation). And Amar Abrol, the next CEO, was found in a compromising situation with a female colleague.
By 2016-17, the Central Bureau of Investigation
(CBI) and the Enforcement Directorate
(ED) had begun to look at alleged financial wrongdoings at the carrier. It came to light that there had been many related-party transactions, and money appeared to have been paid out in excess of what commercial terms dictated to lessors chosen by the airline’s partner AirAsia Berhard.
The airline also hired some agents to help ‘convince’ the government to modify that 5/20 rule, which stipulated that new carriers could not enter overseas markets unless they had been in operation for five years or had a fleet of at least 20 aircraft. The agents were essentially lobbyists like Deepak Talwar, who had been instrumental in influencing government policy through all kinds of means, including in the liberal handouts of bilaterals. This matter, too, is under investigation.
In January 2020, the entire top management of the airline and several former officials were summoned by the ED in connection with the 5/20 and other regulatory violations. As deeper schisms appeared in the Tata stable, the airline became a flashpoint for the larger battle between Cyris Mistry and Ratan Tata, with the former having submitted documents in the courts that apparently highlight Ratan Tata’s own complicity in the violations carried out by those like S Ramadorai and R Venkataramanan.
Financially, too, the airline has been a drain for all parties. The auditors of the airline have been sceptical of it being called a going concern on the grounds that its accumulated losses for the year ended 2018-19 are now Rs 1,284 crore against a share capital of Rs 534 crore. In addition, the company’s current liabilities exceed current assets by Rs 962 crore.
Many feel that the AirAsia India venture has really been “one long embarrassment” for the Tatas, and the people close to the matter say even before the coronavirus
pandemic, the Tata Sons
board had contemplated shutting it down to protect the group from reputational and monetary damage. Covid-19 may have been the perfect opportunity for going ahead with that plan.
However, the people say the agreements between the two parties are watertight. And for all practical purposes, Tata Sons finds itself stuck between the devil and the deep blue sea.