Investigations reveal AirAsia executives had apprised Tatas of lapses in the airline

AirAsia India is conducting an internal investigation after ex-Tata Sons chairman Cyrus Mistry raised red flags over functioning of the airline. During investigations, it surfaced that senior executives of AirAsia had complained to the company board and Tata Group about serious lapses in business practices time and again, but no actions were taken.

AirAsia executives highlighted few complaints, saying AirAsia was being "run" by Malaysian parent AirAsia Bhd, in contravention of FDI rules, and that the Indian venture was being "overcharged" by the Malaysian company.

According to Indian rules, foreign airlines can only own up to 49% in domestic airlines but effective management control must remain with the Indian partner.

As per reports, AirAsia India executives had warned board chairman Ramadorai and director Bharat Vasani about potential losses, and the way the airline was being run. Some executives had questioned AirAsia chief Tony Fernandes on entering into what they termed as “costly financial deals” with associate companies of AirAsia Bhd. Email correspondence between February 2014 and July 2015 highlights these complaints.

"A thorough investigation was sought. The details of fraudulent transactions were discovered through an audit. It was taken to its logical conclusion and an FIR was filed against the resistance that has been discussed in the media in recent days," ET quoted a source as saying.

In an email sent to Ramadorai, former executive Gopalan warned him about the breach of FDI and also hifhlighted many other issues. "Revenue management has to be real time and handled by persons familiar with the Indian marketplace and its behaviour", but the entire process is in Kuala Lumpur (the headquarters of AirAsia Bhd). "This is a significant issue from an effective management control perspective also," Gopalan had written.

"We have been mandated to use AGSS for outsourcing aspects of finance and accounting, HR functions, procurement and IT," Gopalan wrote in a mail to AirAsia Global Shared Services (AGSS). He also wrote that AGSS has exceeded the amount as compared to what it would have been of they were to inhouse the entire operation. There was also a warning that using Tune Insurance, another associate company of the AirAsia group, would reduce AirAsia India's earnings by 50%.

The issue of selecting an advertising company was also brought to light. "We have decided not to go with PHAR, which is an AA (AirAsia) Group Company. This could lead to lesser rates as well," Gopalan noted.

Another issue discussed in the mail was related to authority over clearing payments and expenses. Companies typically assign the responsibility of approving payments over a specified limit to the board and payments related to the day to day expenses to the management but according to a person familiar with the process, in AirAsia India, day to day approvals on key payments, travel, initial offer letters to employees etc came from Fernandes.

"This process was followed because the authority of this director (Fernandes) was agreed by the board. Every agreement and contract that AirAsia India executed with an Indian or foreign agency and related party followed exactly the same process," he told ET.

Another person familiar with the operations of the airlines told ET that only capital expenditure is approved by the board.

Gopalan and several colleagues - such as Gaurav Rathore, commercial director; Amit Singh, director of flight operations; and Najam Rao, head of security - quit AirAsia India in 2015. Chandilya's contract expired in March 2016.

Gopalan also sought a meeting with Mistry. "I brought out (facts) to you so that the (Tata) group is not blindsided...This meeting is requested solely with the intent of protecting the Tata group and to enable me to discharge my duties honestly towards the position I was appointed for," he wrote.

Amar Abrol is the replacement for Chandilya and Ankur Khanna is now in the place of Gopalan, eight months after he quit, with effect from April 1, 2016. The airline is yet to make a profit.