Tata Sons will probably have to make arrangements to deal with INR26 billion rupees (USD326 million) in accumulated losses at AirAsia India (Bengaluru International), a carrier it is seeking to absorb into another of its subsidiaries Air India (AI, Delhi International) by merging it with Air India Express (IX, Delhi International), sources told the Economic Times on August 24.
It was revealed recently that losses at both AirAsia India and a fourth Tata-owned carrier, Vistara (UK, Delhi International), widened for the full year ending March 31, with AirAsia India’s annual loss ballooning 42% to INR21.8 billion (USD273 million) despite rising revenue. An auditor’s report has subsequently cast doubt on AirAsia India as a going concern, saying its net worth has been fully eroded and its liabilities now exceed current assets.
After conglomerate Tata Sons bought a 100% shareholding in Air India in January, in April it asked for antitrust approval to merge the two low-cost carriers. Tata still has an 83.67% stake in AirAsia India, with AirAsia Investment Ltd, part of Malaysia’s Capital A (formerly AirAsia Group), holding the remaining 16.33%.
Officials close to the matter have said that no decision has been taken on whether the AirAsia India debt write-off will be included in the balance sheet of Tata Sons or Air India. The conglomerate has not commented on the developments, but top executives told the Economic Times that Tata had already started work on an AirAsia India-Air India Express merger.
One source involved in Indian tax law told the newspaper that “in mergers between two companies in a group, if one of the companies’ liabilities exceed its assets, the group has to make provisions for impairment in the value of its investments if it is permanent, as per the applicable accounting standards.” Another opined that “the 'going concern' comment in the auditors’ report may need to be independently tested in the new scenario of a merged entity of AirAsia India and Air India Express.”
