Coronavirus impact: Vistara or AirAsia India? Tata Group must pick one as losses mount

It's going to be bloodbath in the aviation sector as a result of Covid-19 outbreak. With passenger operations of all commercial airlines coming to a grinding halt till April 14, probably even beyond, the industry enters a phase of large-scale disruption. According to aviation consultancy firm CAPA, Covid-19 would cost the sector $3.6 billion (Rs 27,200 crore) in just three months. As a result, Tata Sons might be forced to operate just one airline from amongst the two (Vistara and AirAsia India) that it is operating now.

"This may be the right time for Tata Group to rationalise its airline portfolio. This event is going to cripple the entire industry, and Tata Group will be in a position to back just one airline instead of two," says Kapil Kaul, CEO (South Asia), CAPA.

As per data submitted with the ministry of civil aviation, both AirAsia India and Vistara have continuously posted operating losses between FY15 and FY19. Vistara, for instance, posted (provisional) operating losses of Rs 846.1 crore in FY19 in comparison to AirAsia India's Rs 703.04 crore operating losses in the same financial year. In FY19, operating losses of nearly all large carriers, including Vistara and AirAsia India, swelled considerably as compared to the previous financial year.

"Post Covid-19 world is going to be entirely different. The biggest worry is that if this situation gets prolonged, some airlines would shut down. The stronger airlines, especially IndiGo, would likely withstand the impact and restart services with depleted operations. But there seems to be bleak future for loss-making carriers," says an aviation analyst.

Though it's not clear that which Tata Group entity will likely bear the brunt; the rough journey of AirAsia India since inception makes it more vulnerable to the current challenging environment.

Business Today's queries to AirAsia India and Vistara remained unanswered until the publication of this piece.

Both Vistara and AirAsia India commenced operations around the same time though Vistara has grown to be slightly bigger with 41 aircraft (Airbus A320s, Boeing 737-800NG and 787-9) in its fleet covering 36 destinations in India and abroad. AirAsia India, in comparison, has 29 aircraft (A320s) covering 21 destinations. AirAsia India, a joint venture with Tony Fernandes-run AirAsia Bhd, was first to start services in June 2014 from its Bengaluru hub soon after the government allowed 49 per cent FDI (foreign direct investment) into an Indian airline.

The former chairman of Tata Sons Cyrus Mistry was critical about the AirAsia India venture from the beginning. The piling up of losses, slow expansion and the constant exit of C-suite executives made the AirAsia investment far from being healthy. But despite this, Tata Group upped its stake in the venture from 30 per cent initially to 51 per cent last year. Then in 2016, the airline created controversy when a forensic report by Deloitte revealed alleged irregular transactions with fictitious companies mandated by its first CEO Mittu Chandilya. This was followed by a Central Bureau of Investigation (CBI) investigation into alleged lobbying and irregular transactions by AirAsia's Fernandes and other airline executives. Recently, the Enforcement Directorate (ED) summoned Fernandes in a probe for allegedly violating rules of securing overseas flying rights and money laundering.

Tata Group has been reportedly mulling over exiting from AirAsia India for some time now. With so much baggage, it seems that the group has not been able to find a buyer for its stake. Vistara, on the other hand, has been expanding relatively faster, and has taken delivery of its first Dreamliner recently to pursue international ambitions. Vistara, in which the group owns 51 per cent stake (49 per cent is with Singapore Airlines), remains the only private full-service carrier (FSC) in the domestic market after Jet Airways' demise. "Nothing can be ruled out at the moment. With a smaller fleet and lesser number of flying destinations, AirAsia India has garnered more market share (7.3 per cent in February 2020) than Vistara (6.7 per cent). They must be doing something right," says an aviation consultant.

For Tata Group, getting into aviation was more of an emotional decision given that the group's patriarch JRD Tata pioneered the concept of aviation in the country by founding Air India in 1932. Tata Group's keen interest in expanding its aviation vertical has been fairly known. In 2018, when Air India floated the EoI (expression of interest) document for 76 per cent stake sale, the group was considered a front-runner in the race; though it backed out later due to concerns flagged by the board. Last year, its name was doing the rounds when the troubled Jet was up for sale. Early this month, Vistara chairman Bhaskar Bhat had said that they were evaluating the prospects of bidding for the national carrier.

With the global coronavirus outbreak, the situation has turned upside down in a short span for every corporate group, including Tatas. Perhaps, the time is not too far when the group has to make some tough decisions.

Also Read: Coronavirus impact: Supply chain disruption to cost auto industry Rs 6,080 crore

Also Read: Coronavirus scare: Foreign tourist arrivals growth hit record low in February

Also Read: Coronavirus: Govt denies lockdown extension, says 'no such plan'