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For the Tata group, despite a passion for aviation and a seemingly flawless reputation, entering the airline industry has not been easy. The president of Tata Trusts, Ratan Tata, shared the legendary J.R.D. Tata's passion for aviation. He has tried twice to get into the business with Singapore Airlines as a partner. But in the mid-1990s and early 2000s, New Delhi did not favor the idea of allowing foreign direct investment (FDI) in a nascent industry.
A few months before Ratan Tata resigned as president of the Tata group. the reins of Cyrus P. Mistry in 2012, a window of opportunity has emerged. The government opened up the aviation sector and allowed foreign airlines to hold a 49% stake in Indian companies provided that "substantial ownership and effective control" remain with Indian nationals.
All the Tata group had to do was find a foreign partner. and enter the aviation industry. Sounds easy? Not quite
On December 6, 2012, at one of his last board meetings, Ratan Tata invited Fernandes, the Malaysian businessman and promoter of the AirAsia group, to make a presentation. The Board has, in principle, approved the $ 9 million investment, without recourse to the Tata Group's proposed joint venture loan guarantees and appropriate representation on the Board of Directors, to establish AirAsia India. .
When the joint venture was announced, Fernandes and the Tata group had found a third partner in Arun Bhatia, the owner of the holding company Telestra Tradeplace, which would limit Tata's stake to 30%. Tata Sons said it would be "just an investor" in the joint venture and not have an operational role. However, he appointed two non-executive directors to the board of directors, which also included Bhatia and Fernandes.
The problem was that it was a whole new flight plan. When the government opened civil aviation to FDI, the airline industry was facing a severe financial crisis. Almost all Indian airlines, with the exception of IndiGo, were under the weight of high debt and growing losses. Kingfisher Airlines of Vijay Mallya had immobilized his fleet, and the fear was that without foreign capital, many others would suffer the same fate. According to Center for Asia Pacific Aviation estimates, losses of domestic airlines reached Rs 10,429 crore in 2012-13.
Many expected the existing airlines to be the beneficiaries of the first FDI in civil aviation. Ajit Singh, the then minister of civil aviation, also said that the change in FDI policy concerned existing airlines. In such a scenario, the proposal of AirAsia India had divided the government into two parts.
In anticipation of the crucial meeting of March 6, 2013 of the Council for the Promotion of Foreign Investment (FIPB), where the proposal of AirAsia India, the Ministry of Civil Aviation has expressed reservations about of this company. "We understood that the 2012 press note 6 on FDI in civil aviation was intended only for existing airlines and not for new businesses. Others within the government, and especially the Department of Industrial Policy and Promotion, who formulated the policy, were of a different opinion, "says an official who worked with the ministry at that time
so obvious that even the day of the FIPB meeting, Singh said that AirAsia's proposal to invest in a joint venture with Tata Sounds could face "procedural problems." It never clarified what could be These problems Singh and his department's reserves have not prevented AirAsia's investment proposal from obtaining the FIPB's nod. "But that was only the case. A small hurdle in a pathway Before
Mistry, the new president of the Tata group at the time, was never enthusiastic about the new company, revealing documents that have since been unearthed. On October 25, 2016, a day after his dramatic withdrawal as president, Mistry wrote in a letter to the Tata Sons board of directors: "At the beginning of my term, our foray into the aviation sector began when Mr. [Ratan] Tata introduced me into his He delivered a report on AirAsia by Bain & Co. He had concluded negotiations for a partnership with AirAsia and wished that the proposal to be presented at the next meeting of the board of directors. My retreat was hard but futile. However, I was able to extract a promise of debt at the JV level and limit the investment of Tata Sounds to 30% of the equity of $ 30 million. "
Mistry's concerns about an alliance with AirAsia The group was not entirely devoid of logic.In early 2013, the AirAsia group experienced a period of turbulence when it was A joint venture with Vietnam VietJet Aviation was canceled in 2011 and its partnership with the Japanese ANA was on track, ending in June 2013. Mistry has placed 39; Tata Sons General Counsel, Bharat Vasani, on the board of AirAsia India to closely monitor the operations of the company.
Vasani was on the ball from the first day.In an email addressed to Venkataramanan (former executive director of Ratan Tata and one of the first board directors of AirAsia India) on February 24, 2013, Vasani reported several concerns regarding the joint venture agreement for AirAsia India.The main one of them was the question of e "substantial ownership and effective control with Indian nationals". Fortune India has reviewed these emails, which have been submitted to the National Company Law Tribunal as evidence in the ongoing case between Mistry and Tata Sons.
"My concern is that Indian JV partners have said that they will play a passive role of financial investors, there will be significant opposition from competitors who are likely to resist approval / Licensing a joint venture, whose "effective control" is exercised by a foreign airline, we must be aware of this issue and consider solutions to address that concern, "Vasani writes.
Venkataramanan's answer was short but precise. He retorted that the issues had been discussed with the AirAsia Malaysia team. But Vasani's worries were far from over.
An exchange of emails between Vasani and Amir Fazal Zakaria of the AirAsia legal team on April 6, 2013, provides insight into the type of relationship that the two companies were maintaining. The Vasani team had raised concerns about the operational requirements of the brand licensing agreement (BLA) to which the AirAsia group team expressed its "disappointment" following the constant demand for revision BLA and shareholder agreement.
comments on our standard operational requirements that we only agreed to consider editing in order to give the proper optical control effective that the JVCo [AirAsia India is] subscribed to its own manuals and requirements of 39 exploitation rather than that of a stranger … You will also notice that we conceded (for optical purposes) that the right to appoint the CEO and CFO was at the discretion of TSL [Tata Sons Ltd] ", writes Zakaria.
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