Tatas, AirAsia in talks to sort out no-compete rule, signed for their JV

Topics Tata | AirAsia | Air India

N Chandrasekaran, chairman, Tata Sons (Left) and Tony Fernandes, CEO, AirAsia (Right)
The Tata group’s holding company, Tata Sons, and Air Asia —owned by Malaysian businessman Tony Fernandes — are in talks to sort out differences that cropped up between the two groups over the non-compete clause signed for their joint venture, AirAsia India.

The exclusivity clause in the memorandum of agreement signed between Air Asia Berhad, Tata Sons and their erstwhile partner Telestra Tradeplace on February 19, 2013, bars all the partners and their affiliates from directly or indirectly engaging in low cost aviation business. The no-compete agreement disallows investments by all parties in any other airline which provides low-cost, passenger airline service, operating under single aisle, narrow body aircraft flying under four hours both in the domestic and international routes.

According to a source in the know, the non-compete clause will make it difficult for the Tatas to make a bid for Air India —which has been put on the block by the Indian government early this week. This is because of Air India’s  no-frills airline subsidiary Air India Express, which competes directly with AirAsia India. An expression of interest has to be submitted by March 17.

The Tatas own 51 per cent in AirAsia India and have taken complete control of the joint venture by appointing its own managing director and CEO in the last two years. Air Asia owns the rest of the equity. “The two groups are in talks to sort out all the pending issues,” said a source close to the development. 

When contacted, Tata Sons and AirAsia India spokespersons declined to comment. 

E-mails sent to Air Asia Berhad did not elicit any response. 

 

The talks between the two partners comes at a time when Fernandes is facing an Enforcement Directorate (ED) enquiry over allegations of money laundering and has been summoned by the probe agency on February 5 seeking details about the airline’s operations since it was launched in 2014.

Apart from the ED probe, Fernandes is also facing a Central Bureau of Investigation (CBI) investigation on charges of criminal conspiracy. CBI’s first information report filed in May 2018 alleges that the Malaysian partner controlled AirAsia India indirectly flouting Foreign Investment Promotion Board norms, and was taking all the key decisions about the airline including appointment of top management. The CBI has alleged that the airline hired lobbyists to get faster clearances to start its operations in India and was almost operating as a local subsidiary of Air Asia Berhad. 

Air Asia has denied the allegations and Fernandes has not yet appeared before the investigating agencies. 

According to a source close to the development, the fracas over no-compete is a prelude to exit of Air Asia from the joint venture at a higher valuation for its stake.  

The differences between the two partner were first highlighted by the then Tata Group legal counsel and director on the board of AirAsia India, Bharat Vasani, who in November 2014 sent an email stating that AirAsia India is run like a department of Air Asia Berhad.  

Vasani was especially worried that directors of AirAsia India were not furnished commercial rates for aircraft leases, which are related party transactions, and the board is expected to approve these transactions. Few months later, Vasani said Air Asia Berhad had appointed a chief financial officer for AirAsia India -- which was the prerogative of the Tatas. He also outlined the risk for AirAsia India flouting regulatory norms relating to "effective control".  

In November 2015, Fernandes had written to his local partners noting the huge delay in getting licenses, and asserting that the local partner was supposed to have got the regulatory rules (5/20 rule) changed, and threatening to walk out of the venture. This was in response to AirAsia India’s then minority Indian shareholder Arun Bhatia (Telestra) objecting to the related party transactions.  In 2016, Tatas bought Bhatia’s stake. 



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