LAST month AirAsia Group Bhd, in response to media reports that it might be reviewing its investment in AirAsia India and could exit the country, acknowledged the operation has been draining cash “causing the group much financial stress.” (comment made in this report)
The Group has reached a solution to ease the “financial stress” by reducing its stake in the India-based carrier. Through its wholly owned subsidiary, AirAsia Investment Limited (AAIL), it is selling 32.67% of its 49% stake in AirAsia India to JV partner Tata Sons Private Limited, which already owned 51% interest, for US$37.66 million (RM152.58 million) cash.
In a filing with Bursa Malaysia (stock exchange of Malaysia) yesterday (December 29) the Group said it has entered into a share purchase agreement with Tata Sons for the proposed disposal. This will result in a gain of RM152.58 million in Q4 2020 at both AAIL and consolidated group levels.
“The net assets and cash balance of AAIL will also increase by the same amount immediately after this cash disposal exercise,” it added.
As part of the transaction there will be a call option in respect of AAIL’s remaining 16.33% stake in AirAsia India, exercisable by Tata Sons at any time after the transaction is completed.
In addition, there will also be a put option exercisable by AAIL in two tranches, with the first tranche being exercisable from March 1, 2022 until May 30, 2022, and the second tranche being exercisable from October 1, 2022 to 31 December 31, 2022.
The total consideration in respect of the options granted for AAIL’s remaining 16.3% stake would be US$18.83 million (about RM76.29 million).
AAIL has also agreed to waive off unpaid brand license fees payable by AirAsia India to AirAsia Bhd, a unit of the company, under the brand licence and technical services agreement dated December 30,2019 due to the Covid-19 pandemic.
“This waiver would not have any material effect on the earnings per share, net assets per share and gearing of AirAsia and its subsidiaries,” added AAIL.
Bo Lingam said the sale “will allow us to use cash to grow market share in our core markets in Asean … ”
Commenting on the transaction president (airlines) of AirAsia Group, Bo Lingam, said it was in line with initiatives to reduce cash utilisation for the Group .
“It will allow us to use cash to grow market share in our core markets in Asean particularly in Malaysia, Thailand, Indonesia and the Philippines as well as for our future expansion into Cambodia, Myanmar and Vietnam.
He added that the Group has been reviewing its forward business strategy regularly, including its investment in AirAsia India.
“This transaction will ensure strict cost containment for AirAsia Group in the short term, and strengthen our presence in Asean while continuing our market dominance for travel from Asean to India and North Asia.”
He stressed that India will remain an important market for AirAsia.
“Tata Sons Private Limited has been an excellent partner and we look forward to continue working closely together in other areas of growth.”
The transaction is expected to be completed by the end of March 2021. AirAsia Group disclosed the cash proceeds from the sale would be utilised as working capital in Q1 2021.
Meanwhile, MIDF Research said in a report in the New Straits Times that AirAsia Group’s disposal of its stake in AirAsia India would “help improve the group’s dire cash position.”
The research firm said similar to closure of AirAsia Japan, the announcement on AirAsia India was long anticipated.
AirAsia Japan shut down its operations on October 5 citing “highly challenging operating conditions”.
“AirAsia India was never a profitable venture to the group and non-core market for AirAsia,” MIDF Research was quoted as saying.
Headquartered in Bengaluru, AirAsia India flies to 19 domestic destinations across India with 30 Airbus A320 aircraft.
AirAsia will resume international services to India from Malaysia and Thailand after travel restrictions are lifted and borders with India are reopened. The carrier operates over 100 weekly flights from the two countries to nine destinations in India.
• The detailed announcement of AirAsia Group’s sale of AirAsia India’s stake here (PDF document).
• All images credit: AirAsia Group