According to recent reports, Air India’s proposal to fully acquire the equity share capital of low-cost carrier AirAsia India has been approved by the Competition Commission of India (CCI), in June this year.
Not just that, it is said that Tata Sons are likely to make a provision of Rs. 2,600 crores as accumulated losses for the airline. The company is seeking to absorb AirAsia India into Air India and merge with Air India Express as mentioned.
Moreover, this comes after an auditor’s report that AirAsia India’s net worth is known to have been fully eroded and its liabilities are said to be over the current assets, casting doubt on the airline as a going concern.
The Tatas however are planning to merge AirAsia India into Air India and merge with no frills in its Air India Express, a source said. In addition to this, it is worth noting that, AirAsia India is simply majority owned by Tata Sons with a shareholding of about 83.67 percent, and AirAsia Investment ltd, part of Malaysia’s AirAsia Group, controls the rest of the stake in the budget carrier.
However, the carrier, which was already bearing a lot of losses, further bore the burnt of the Covid Pandemic. Also, as of now, no decision has been made on whether the write-off will be included in the balance sheet of Tata Sons or Air India, officials said.
“In mergers between two group companies – AirAsia India with Air India Express – if one of the group companies’ liabilities exceeds its assets, the group has to make provisions for impairment in the value of investments if it’s permanent, as per applicable accounting standards,” said Uday Ved, partner at global tax practice group KNAV.
“In the case of the AirAsia India merger, additional impairment provisions, if any, will be restricted to the extent of the impairment provisions not already accounted for in the latest reported standalone financial statements of Tata Sons.”
Know that, while Air India, being a full-service airline, flies both domestically and internationally, Air India Express is known to cater to short-haul international operations, especially to the Middle East from South India and other places.
“In case the AirAsia India accounts, including liabilities, are already consolidated with those of Tata Sons, no further provisions other than impairment testing of the investment may be required, pursuant to the merger”, said Zulfiqar Shivji, founder of audit and consulting firm ZADN & Associates.
“The ‘going concern’ comment in the auditors’ report may need to be independently tested in the new scenario as a merged entity of AirAsia India and Air India Express,” he added.
Reading so far, I hope you must have gotten a fair insight into Air India’s acquisition of AirAsia India, and by now I believe you will be able to decide on your own whether or not you think it was the right thing to do and whether or not you think will be their next move.
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