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Air India Acquisition Might Not Be Easy for Tata Sons Due to AirAsia Non Compete Rule

While Tata Sons might seem like a fit entity who could invest in Air India and participate in the stake sale for the national carrier, there are a few hurdled that the company might face. Tata Sons already owns a majority stake in Vistara. However, the company had signed a Memorandum of Understanding (MoU) with AirAsia Berhad for AirAsia India in partnership with Telestra Tradeplace which had a non-compete clause. This non-compete clause might come in the way of Tata Sons if it is to invest in Air India and buy the full stakes of the airlines. 

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Tata Sons’ Hands Tied With AirAsia Non-Compete Clause

As per the non-compete clause given in the MoU, the parties are restricted from investing in companies which are offering similar services as AirAsia. Going by the proper definition, Tata Sons cannot invest in any airline that provides low-cost passenger airline services on narrow-body aircraft flying on domestic and international routes under four hours. The report comes from Business Standard. It is worth noting that Tata Sons also holds 51% stake in AirAsia India whereas the rest of the minority stake is owned by the Malaysia based carrier, AirAsia Berhad. 

Debt Another Issue for Tata Sons in Air India Buyout

It is worth noting that Tata Sons’ interest in Air India has been gauged long back when the discussions about stake sale first came up in 2019. If Tata Sons decides to buy Air India, then it would also get 100% control of Air India Express which is the low-cost subsidised airline under Air India and services domestic routes. Air India Express is one entity which is in direct competition with AirAsia India. Another hurdle for Tata Sons was the unclear debt position of AirAsia India. However, to make the stake sale more attractive, the debt of the airline has been reduced from the previous Rs 60,074 crore to Rs 23,286 crore.

AirAsia Under Probe

All of this news comes at a time when AirAsia Berhad’s CEO Tony Fernandes is under enquiry and a CBI probe to find out if the airline had used unfair means to obtain a permit for flying internationally. The airline has totally denied these claims. On the other hand, Tata Son’s Vistara and AirAsia India have combined made a loss of Rs 1,500 crore in FY19. 

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Whenever Arpit boards a plane he is filled with awe and bewilderment and soaring above the skies is something marvellous for him. An aviation and tech geek through and through Arpit writes at AviationScoop not only because he's experienced and good at his craft but also because flying is something which makes his heart flutter with joy.

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