The Malaysian company holds 16.33% of AirAsia India, while Tata currently controls 83.67%.
Talks between the two sides began earlier this year and gained momentum after the Indian government announced Tata’s successful bid to take over national flag carrier Air India last month, said the sources, who requested anonymity.
The negotiations are expected to be concluded by early next year, said one source, the same time as Tata is due to take over Air India’s operations.
AirAsia has been eyeing an exit from its Indian venture for almost a year. In December 2020, it announced the disposal of a 32.67% stake to Tata Sons for US$37.7 million, with a provision to sell the remaining 16.33% for US$18.8 million.
AirAsia India at present has a fleet size of 33 aircraft and operates about 200 flights daily.
If the sale is finalised, India would be AirAsia’s second foreign venture to collapse since the Covid-19 pandemic paralysed air travel amid movement restrictions and international border closures, after Japan in October 2020.
“India was a tough market to break as far as the airline business is concerned, and with the pandemic, it made it tougher for AirAsia,” said one of the sources.
AirAsia founder and group CEO Tony Fernandes declined to comment when asked about the discussions with Tata.
“It would not be fair for them (Tata),” he told Nikkei. Queries to Tata Group were unanswered by publication time.
In October, Tata succeeded in its bid to purchase the debt-ridden and government-owned Air India for US$2.4 billion in a bundle with its low-cost unit Air India Express, as well as 50% of ground services company AISATS.
Besides AirAsia India and Air India, the salt-to-steel conglomerate also owns a majority stake in Vistara, a full-service carrier, in a joint venture with Singapore Airlines.
The exit of its minority partner in AirAsia India would make it easier for Tata to consolidate some of its airline businesses, according to the sources.
“It would not make sense for Tata to run both AirAsia India and Air India Express, which have very similar business models,” said one of them.
The other source said the disposal would allow AirAsia, meanwhile, to rebuild its airline business, focusing on its core hubs of Malaysia, Indonesia, Thailand and the Philippines.
For aviation consultant Shukor Yusof of Endau Analytics, the proposed deal makes sense given the Malaysian airline’s futile attempt to make an impact in South Asia’s largest country.
“AirAsia has struggled to replicate the success it has had with AirAsia Thailand, for example,” Shukor said. “Perhaps the management has realised they’ve overextended themselves, too.”
AirAsia India was launched in July 2014 via a joint venture between AirAsia, Tata Sons and Arun Bhatia of Telstra Tradeplace, who is no longer a shareholder.
Fernandes had labelled India one of his “dream projects” and wanted to take advantage of the Indian government’s decision in February 2013 to allow foreign ownership of airlines up to a 49% stake.
AirAsia India was poised to take on fierce competitors in the low-cost segment, such as IndiGo, Go Air and SpiceJet.
But despite a market of nearly 1.4 billion people, most airlines in India have suffered heavy losses due to high fuel costs, discounted fares and a weak rupee.
The project has done little for AirAsia’s bottom line, despite Fernandes’ hopes, and the Malaysian carrier has been hit hard by the pandemic.
AirAsia’s net loss ballooned last year to RM5.1 billion from a RM315.8 million loss reported in 2019. Revenue plunged to RM3.1 billion in 2020 from RM11.9 billion the previous year.
For the first half of 2021, the airline reported a net loss of RM1.3 billion from a net profit of RM1.8 billion during the same period in 2020. Revenue also tumbled to RM686.8 million from RM2.5 billion.
AirAsia last month proposed a rights issue to raise up to RM1 billion to be used for operating and working capital.
The airline was granted a federal government-guaranteed loan of RM500 million last month under a system introduced to assist companies directly affected by the pandemic.
The loan was part of a RM2 billion fundraising exercise that Fernandes mooted last year.
“AirAsia continues to look at other potential new markets, so it’s not exactly a consolidation but this is driven more by developments in India that made sense for Tata to end its relationship with AAG and go on its own,” Brendan Sobie, an independent analyst with Sobie Aviation, said of the Malaysian carrier’s exit.
“It will be interesting to see how Tata manages the four airlines, including how the two LCCs (AirAsia India and Air India Express) are handled going forward,” Sobie said.
“The two could be combined under Air India Express which has been far more successful than AirAsia India.”