Air Asia to sell its India business to Air India

It is not official. Air Asia is planning to fully exit its India venture after 8 long years and focus on its erstwhile specialized ASEAN region, comprising of Malaysia, Thailand, Indonesia and the Philippines. As per the original plan envisaged at the time of Tatas buying out Air India, the game plan now is that Air India has already commenced its operational review process to fully integrate AirAsia India with Air India Express. After all, both these are low-cost carriers and there is a natural fit between these two players. The entire merger deal is likely to be completed and consummated by the end of the year 2023. 

Read: Tatas-owned Air India to take full control of AirAsia India

The first step is to integrate the ownership of Air Asia India fully into the Tata group. Towards that end, the Tata-owned Air India has already signed agreements to enhance its stake in Air Asia India to 100%. Air Asia India, which started operations in India way back in the year 2014, is a joint venture between Tata Sons and Air Asia Investment Ltd. Tata Sons currently has an 83.67% stake in the joint venture while the remaining 16.33% is owned by Air Asia. This will be the first step as the integration of operations is likely to happen only after the Tata group gets 100% control of Air Asia India. 

The merger deal between Air India Express (the low cost carrier brand) and Air Asia India ( joint venture between Air Asia and Tatas) will be completed by the year 2023. The idea is for the Tatas to now have just one low-cost carrier for the Air India group under the banner of Air India Express. Hence, once the merger is completed, the combined entity will retain the name of Air India Express. Incidentally, Air India Express was floated in the year 2005, exactly 2 years before the merger of Indian Airlines and Air India into a single unit. That was when the slew of problems for Air India had actually started off. 

So, now the Tata group game plan falls in place. The combined entity of Air Asia India and Air India Express will be the low cost carrier business of the Tata group under the banner of Air India Express. This will be part of the medium to long term group restructuring. The full service airline business of the Tata group will comprise of a combination of Air India and Vistara, although the latter is a joint venture with Singapore Airlines. The integration of Air Asia India into Air India Express will be done in tune with the restructuring roadmap. The target is to garner market share of over 30% of Indian market in the next five years.

It has been confirmed by the Malaysia based AirAsia Aviation Group that it had already entered into a share purchase agreement to sell the remaining equity shares held in AirAsia India to Air India. For the Tatas, the combination of AirAsia India and Air India Express will proffer benefits in terms of customer enhancement, revenue widening, cost controls and operational efficiency to boot. More importantly, there will be a standard set of protocols and aviation best practices, systems and routes that would be followed. This is likely to be value accretive to the group as well as to the aviation business of these airline entities.

Some of the regulatory formalities are already done and dusted. For instance, the Competition Commission of India (CCI) has already approved the proposed acquisition of the entire shareholding of AirAsia India by Air India. India remains one of the biggest and also one of the most promising aviation markets. However, it has been a tough market to crack, that is not only cost conscious but the terrain is a lot tougher to map and cover for any airline. For Air Asia, selling out makes sense as it allows them to focus on their core ASEAN franchise. For Air India, it complements their existing business model.