AirAsia India partners have cordial ties, says Ramadorai

AirAsia India - the joint venture between Malaysian low-cost airline AirAsia Berhad, the Tata Group and Arun Bhatia - is in the docks after Bhatia has accused the promoter airline of controlling the operations from Malaysia. Most key decisions, including those involving daily operations, are allegedly being taken in the Sepang headquarters of the parent company, said sources close to developments. However, AirAsia India has denied the charges.

Indian government may consider a probe into the matter as aviation FDI policy clearly states that if a foreign airline partners or invests in an Indian airline, "effective control" must remain in Indian hands.

Bhatia's remarks may be fallout of a share purchase deal gone sour between him and Tata Sons, said sources. Bhatia owns 10 per cent in the airline and Tata Sons own 41 per cent. The remaining 49 per cent is held by AirAsia Malaysia. The total equity in the airline is $30 million. It began operations last June and holds 2 per cent market share in domestic sector.

Bhatia did not respond to calls and text messages from Business Standard. In a media report, Bhatia said he had repeatedly raised concerns over the control exercised by AirAsia Malaysia and had demanded answers on why the airline continued to be in the red.

"Any disciplined airline should be able to make money in times like these when fuel prices are so low. If any airline is struggling in the present scenario, it may need to look at where it is going wrong," said CEO of one of the rival companies. Bhatia, who did not participate in the last fund-raising round in August, also said he would not infuse cash until his concerns were addressed. While on one hand Bhatia raised the issue of control by the Malaysian promoters in board meetings, on the other, he is keen to sell his stake to the Tata Group. The two sides, however, have not agreed upon the valuation. If the deal gets through, Tata Sons will have 51 per cent holding in the budget carrier. "AirAsia India is a board-driven company and it is incorrect to state that it is being controlled by the Malaysian shareholder. There are no irregularities. We do not comment on board-level proceedings but suffice it to say that the partners have cordial relations and are committed to the joint venture," S Ramadorai, chairman, AirAsia India said.

Although represented on the AirAsia India board, the Tatas are said to be minimally involved in the day-to-day operations.

There have been allegations, including some leaked emails, suggesting that routine matters, like fares on specific routes, are being decided outside India. Leaked emails and information with the government add weight to the allegations made by senior MP Subramanian Swamy who had filed public interest litigation in the Supreme Court seeking quashing of the clearance granted to AirAsia India.

Former employees of AirAsia said excessive interference by AirAsia Berhad is one of the reasons behind frequent churning at the senior level.

AirAsia Berhad has also been accused of inflating its profits by charging a premium to its affiliates in other countries for related party transactions. While the premium may not be illegal, it is seen "unethical". Sources said some of the "related party transactions" have been cleared by AirAsia India without the board approval.

In June this year, GMT - an accounting research firm based in Hong Kong - released a report accusing AirAsia parent company of squeezing money out of its loss-making associates in Philippines and Indonesia on account of plane lease and maintenance deals. "AirAsia seems to be making more money leasing planes to associates than flying planes around the region," Gillem Tulloch, a partner at GMT had said when the report was released.

The report and the subsequent press coverage sent Air Asia shares into a tailspin.