Swamy's petition against AirAsia: Will aviation min ask co to amend shareholder agreement?

Will the Ministry of Civil Aviation seek a change in the shareholder agreement between Tata Sons, AirAsia BhD and Telestra Tradeplace?

A case against this three way joint venture, which runs AirAsia India, is being heard by the courts after BJP MP Subramanian Swamy raised several objections over the incorporation of the airline earlier this year.

Swamy has questioned whether substantial ownership and effective control of AirAsia India is in Indian hands since there is no clear Indian majority shareholder, the Indian shareholding is split between two companies.

This may prompt the ministry to seek a change in the shareholder agreement now, a source privy to developments told Firstbiz.

If the ministry does seek a change in the shareholder agreement for AirAsia, this would clearly point to a procedural lapse on its part while vetting the airline’s applications. We tried to reach key ministry officials for this story but they remained unavailable.

More from Corporate

Maha: Court orders Rs 30L compensation for parents after youth dies in road accident Ashleigh Barty comes from set down to beat Coco Gauff in Australian Open lead-up

In AirAsia India, the two Indian partners - Tata Sons (30%) and Telestra Tradeplace (21%) together hold majority 51% equity but are minority shareholders individually. So technically speaking, either could work in tandem with the foreign shareholder - AirAsia BhD which holds 49% equity - on any board decision.

The source quoted earlier said the ministry accorded a No Objection Certificate (NOC) to AirAsia India without even having a copy of the shareholder agreement with it.

The agreement was subsequently submitted but it only goes to show that there was “undue haste” in providing an NOC to the AirAsia application by the ministry. And that the ministry was unable to scrutinize if the two Indian shareholders had any intention or commitment to act together. An NOC from the ministry is mandatory before a new airline can be granted a flying permit by the DGCA.

Speaking to Firstbiz, Telestra Tradeplace’s Arun Bhatia said “As of now, yes we and the Tatas can technically vote differently …I don’t think we will have an objection if the Government wants us to make changes to shareholder agreement. But I have not heard anything till now on this.”

Subramanian Swamy told Firstbiz his fundamental objections to the Government granting permissions to AirAsia India remain “even if the shareholder agreement is amended. There is no sanction for this project since FDI was not meant for a new airline, it was only meant for an existing airline.”

In his petition to the court earlier, Swamy has raised several objections:

1. Who holds effective control: Swamy says the articles of association of AirAsia India say that shareholder agreement between the shareholders shall prevail over the by-laws of the company. Tata Sons (30 percent) and Telestra Tradeplace (21 percent) are the Indian shareholders in this airline. Swamy says numerous management difficulties would come up in the absence of there being a single majority Indian shareholder with respect to “effective control” since AirAsia Bhd holds remaining 49 percent equity in the airline.

2. AirAsia’s board representation: Swamy says the requirement of quorum is one-third of the total strength of the board of directors or two directors, whichever is higher. Since AirAsia has two directors on the airline’s board, these two alone would be sufficient to pass resolutions.

3. Tatas only investors, no management role: Swamy says Telestra’s promoters could join hands with Tony Fernandes of AirAsia Bhd and therefore effective management of the airline could slip away from Indian hands.

AirAsia India commenced operations in June this year and is expected to double its fleet to four aircraft in December.