Air Asia India flouting Indian aviation rules?

Air Asia launched a no-frills Indian airline a couple of years ago (read here and here), and after being a local airline for South India for a long time, started operations to Delhi last year as well. The airline has been under cloud for the fact that it was never being run from India, and that the CEO was actually a figurehead CEO. Maybe that explains the fact that a 35 year old with no experience in aviation whatsoever was made CEO in the first place.

About two weeks ago, Tata Sons bought out the third shareholder in Air Asia India, Telestra, to become a 51% shareholder (49% directly and 2% via proxy shareholders). The third shareholder was in dissent of Air Asia (49%) and Tata (30% initially, then 41%, now 49%), because he felt that the company was effectively being run out of Malaysia where the Air Asia headquarters are based. While the management on paper is Indian, however they are subject to directions from KL.

A damning press report was published yesterday in the Mint, by one of India’s finest aviation journalists, which corroborates the views of the minority shareholder. Have a look at the whole piece here. I’m putting out some excerpts who don’t have the time for the whole reading. The report openly states that they have seen documents and emails which prove the control exerted from Malaysia

Documents and email exchanges reviewed by Mint prove that AirAsia India is run by AirAsia Bhd, in contravention of Indian laws that say that while Indian airlines can allow a foreign airline to own up to 49% in them, they have to be controlled and run by the Indian partners.

The whole control exerted from Air Asia hinges in a previously undisclosed document which is the brand licensing agreement between Air Asia and Air Asia India.

On 17 April 2013, AirAsia Bhd signed a brand licence agreement with AirAsia India Pvt. Ltd.

The 62-page agreement says AirAsia India “will observe and comply strictly with the following operating requirements which are to be determined in AirAsia’s sole discretion”.

The compliance includes just about every possible area—ancillary revenues, branding, catering and in-flight services, customer experience, engineering, finance, flight operations, innovation, commercial and technology, marketing, network planning, people, quality and assurance, revenue management, safety, sales and distribution.

Further, if this agreement exists, which I am sure it does because Air Asia is using the Malaysian company’s brand, then it has smartly contoured a management control agreement as a harmless brand licensing agreement. There are various emails proving this:

Another, from August 2014, shows that the entire budgeting for AirAsia India (and indeed other AirAsia subsidiaries) was done out of AirAsia Bhd’s Kuala Lumpur headquarters.

“Please to inform that the upcoming year budget exercise shall start from end of September. Aircraft plan and route rollout will be sent to you on 29 September 2014 once receive from Regional Network Planning (Subashini),” Lim Wen Shiow from AirAsia Bhd’s finance department wrote in an email on 26 August 2014.

Not just that, it seems that Air Asia was charging an above market price for leasing planes to Air Asia India:

Other mails indicate that AirAsia India may have a received a raw deal while leasing aircraft from AirAsia Bhd.

For instance, old Airbus A320s were priced almost the same as new ones. One A320, made in 2009, and registered as VT-BLR, was leased for $320,000 per month; another, VT-ATF, manufactured in 2014, was leased out for $315,788.

The prices do not match the prevailing rates provided by an independent consultant.

The leased cost of an Airbus A320 aircraft (February 2010 make) is about $235,000 per month. A 2013 make costs about $280,000, according to data from aviation consulting firm CAPA.

Further, Tony Fernandes seems to be angry when Air Asia India protests about some high costs from Air Asia:

Another set of mails show the management of AirAsia India holding off on approving the purchase of a software (AX2012) and being ticked off by Fernandes. “Vijay do not… (mess) around and play politics with me or you will be fired in 24 hours. You… sign… You can’t… pick and choose what you want. Brand, planes, expertise and then don’t follow others,” Fernandes wrote in a 17 June 2014 email to chief financial officer Vijay Gopalan.

Fernandes was upset with AirAsia India for resisting signing contracts with AirAsia group companies. The local airline had wanted AirAsia India’s board approval before signing the agreements as it felt work could be done at a lower cost in India.

Of course there is a lot more details in the news article, which shows that people in Air Asia India had reporting to their counterparts in Malaysia, and only dotted reporting to the CEO of Air Asia India. This is in contravention of DGCA rules which state that foreign airlines do not have the right to control Indian airlines by virtue of investing in them.

Bottomline

I’m truly disappointed that the Tata group is hand in glove in this, as they have done a good job with their other airline enterprise Vistara, where the control is Indian and corporate governance is above par. The public interest litigation in the courts is already being contested on the same lines for Air Asia India’s license cancellation, and this revelation surely sets up some direction on that count.

What do you guys think about Air Asia India and how do you think this will affect the airline?

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