Tata-Singapore Air tie-up raises Arun Bhatia's hackles
21 September 2013
The move by the Tata Group for a joint venture with Singapore Airlines (SIA), announced on Thursday, has raised hackles among shareholders in its other airline joint venture with AirAsia, particularly Arun Bhatia, a major stakeholder in AirAsia India.
Bhatia, whose Telestra Tradeplace has a 21-per cent stake in AirAsia India, has accused the Tata Group of being ''unethical'' by keeping him in the dark about the proposed joint venture with Singapore Airlines.
Bhatia also told a website he would raise the matter at AirAsia's board meeting on 28 September.
Bhatia's concerns, which he aired on Friday, and AirAsia chief Tony Fernandes' silence on the issue have raised apprehensions in many circles that all was not well between the three major shareholders of AirAsia (Malaysia's AirAsia Bhd holds 49 per cent, the Tatas have 30 per cent, and Telestra 21 per cent) on the issue.
However, a top executive of AirAsia said the Indian conglomerate had not violated any clause of the joint venture agreement. ''They had showed their intent for their tie-up with SIA. It is an internal matter. Our agreement with them does not say that they have to keep us updated on a day-to-day basis and does not violate of the shareholders' agreement. Besides, the business models of both are different,'' the executive added.
A TV channel on Friday quoted Bhatia as saying while he was not looking to walk away from the joint venture, he was ready to buy out Tata Sons' stake.
A Tata Group spokesperson said he had no comments on Bhatia's statement to the media.
The Singapore Airlines-Tata deal was announced to civil aviation minister Ajit Singh by the chairman of the joint venture, Prasad Menon, a director in Tata Industries.
The fresh controversy comes even as questions were being raised about a possible conflict of interest.
In India, the distinction between full-service and low-cost airlines is blurred, with almost all airlines offering comparable fares. Jet Airways, which began as a full-service carrier, had ventured into the low-cost market with Jet Konnect and JetLite to respond to the changed market conditions. Now, about 50 per cent of its capacity is in the low-cost space.
AirAsia and Singapore Airlines, which has two low-cost carriers (Scoot and Tiger Air) are in competition in Australia, China and Southeast Asia. With both airlines keen to start international services from India, competition is expected to get intense.
The Tatas have ruled out conflict of interest. The group also denied that the creation of two airlines would lead to cannibalisation of traffic.
''There is sufficient distinction (in demand) and that is the reason for Tata Sons to enter into distinct initiatives, with Air Asia in the low-cost carrier segment and with Singapore Airlines in the full-service segment. Hence, questions of conflict of interest or cannibalisation do not arise. AirAsia India will fly passengers with one set of demands and needs, Tata Sons–Singapore Airlines will fly another set. When they begin operations, the differentiation, vis-à-vis existing operators in India and also between them, and its positive impact on either set of passengers will become visible,'' a Tata Sons spokesperson said.
''Tata Sons does not have common representatives on the boards of the two entities. The Tata group's corporate governance practices are such that interests of entities it is party to and that of its partners are assuredly protected.''