Investors flee scandal-hit AirAsia counters

The corruption allegations could be an overall sentiment dampener, especially in the current challenging operating environment, says expert

by NUR HANANI AZMAN/ pic by BLOOMBERG

AIRASIA Group Bhd and AirAsia X Bhd (AAX) founders’ plea of innocence failed to calm investors’ nerves, fearing the impact on the brand and the business damage the companies may suffer from the corruption allegations and investigations underway against the carriers’ founders.

The move by AirAsia chairman Datuk Kamarudin Meranun and AirAsia group CEO Tan Sri Dr Tony Fernandes to temporarily step down from their executive roles did little to investors’ confidence that has been shaken by the growing coronavirus health problem across the world, and set to hit the airline business hard.

At close yesterday, AirAsia fell 13 sen or 10.16% to RM1.15 with 134.8 million shares transacted, while AAX lost one sen or 4.17% to 11.5 sen with 26.3 million shares traded.

The low-cost carrier (LCC) lost RM435.2 million of market capitalisation yesterday and was valued at RM3.84 billion. Meanwhile, the long-haul LCC AAX’s market capitalisation stood at RM477 million.

MIDF Amanah Investment Bank Bhd (MIDF Research) downgraded AirAsia to ‘Neutral’ from ‘Buy’ with a target price to RM1.20 per share (from RM1.86 previously).

“Operationally, we view AirAsia’s efforts in its non-airline business represented by Teleport, BigPay, airasia.com and RedBeat Ventures Sdn Bhd to continue growing.

“Teleport is on track to meet the RM400 million target in financial year 2019, enhanced via ‘teleport. social’, while airasia.com effectively intensifies competition with other online travel agents,” MIDF Research analyst Adam Mohamed Rahim said in a strategy note yesterday.

He added that the corruption allegations could be an overall sentiment dampener, especially in the current challenging operating environment.

The timeline of the investigation on the alleged corruption by the Malaysian Anti- Corruption Commission and Malaysian Aviation Commission could not be estimated, given the lack of precedence of such cases in the country, he added.

“Until the outcome of the investigations is known, precautions have to be taken in valuing the company as any adverse findings could pose an impact to the airlines’ reputation and potential financial penalties,” Adam stated.

In response to the allegations of corruption involving Airbus SE, Kamarudin and Fernandes denied all allegations of wrongdoing or misconduct.

In a statement yesterday, both said the UK Serious Fraud Office did not approach either of them over the four-year investigation period involving Airbus, and said this was a clear violation of the fundamental legal principle of fairness and access to justice.

Meranun and Fernandes have relinquished their executive roles in the airlines, but remain as advisors, effective Feb 3 for a two-month period.

In the interim, AirAsia deputy group CEO for airlines business Thamarulingam Kanagalingam has been appointed as the acting CEO.

Considering that AirAsia remains a competitive and successful LCC, Sunway University Business School economist Prof Dr Yeah Kim Leng expects the carrier will likely survive these latest challenges.

“As in previous cases involving public-listed companies, it is appropriate for the two top executives to step aside until the investigations by both internal and external parties are completed.

“The move will help AirAsia to limit further damage to its reputation while it addresses the allegations in an open, transparent and objective manner,” he told The Malaysian Reserve.

Yeah said this will test the firm’s management quality and ability to withstand crises related to not just the corruption allegations, but also the adversity to the airline and tourism industry caused by the ongoing Wuhan coronavirus epidemic outbreak.