Turbulence hits AirAsia

AirAsia is a global brand that has been on the radar of many international investors

Graphic By TMR File

THE alleged corruption which involved AirAsia Group Bhd’s founders in past aircraft purchase deals with European planemaker, Airbus SE, has put them and the low-cost carrier in a delicate situation.

AirAsia’s founders and controlling shareholders Tan Sri Dr Tony Fernandes and Datuk Kamarudin Meranun have come out publicly denying the allegations in an attempt to contain the fallout that would affect them personally, as well as their businesses.

Although it’s too early to predict the outcome of the various investigations that are currently ongoing, the damage is already done.

Nevertheless, AirAsia is an asset to the local economy, providing international connections with its route that transports some 50 million people yearly and employs some 20,000 workers globally.

The AirAsia brand is also a global brand that has been nurtured by Fernandes, and the company has been on the radar of many international investors.

In a way, the scandal has put all concerned in a difficult situation.

Can the company remain successful under new owners if the two founders were charged following investigations underway by regulators such as the Securities Commission Malaysia, Malaysia Aviation Commission and the Malaysian Anti-Corruption Commission?

Will they be willing to step down and make way for others in the best interest of the company and employees? Generally, people may come and go, but the company needs to go on.

The AirAsia stock is for now caught in a perfect storm. As it is, sentiment towards the airline sector has been hit by the coronavirus outbreak in China. The allegations seem to have added more fuel to the fire.

Investors have sold down the counter heavily, including its substantial shareholder, the Employees Provident Fund, which dumped some 14 million shares on Monday, according to its recent exchange filing once the news became public.

The stock has lost about a third or RM1.5 billion in value since mid-January to close at RM1.23 yesterday as its earnings outlook looks breaker with China inbound and outbound routes being cut.

How its other institutional investors reacted is hard to say, but as interest in environmental, social and governance investing grows, it’s bound to be negative.

The trading volumes of AirAsia shares have remained high, driven up by day traders looking to short and then pick up before the trading day ends for a quick profit.

After four years of investigations, the UK’s Serious Fraud Office (SFO) fined Airbus a whopping US$4 billion (RM16.48 billion) as settlement for the various bribery allegations that the planemaker was involved in, including pumping some US$50 million into now defunct Caterham Formula 1 racing team, owned by the two AirAsia executives.

Fernandes, in a statement this week, said the money was a branding exercise involving the AirAsia carrier brand, General Electric Co and Airbus, and not a moneymaking venture.

Fortunately for the duo, the alleged US$55 million that was supposed to go to them was not deposited by Airbus. Now, that may be a blessing, because if the money had exchanged hands, the knives would have been out for their heads.

Fernandes and Kamarudin have vacated their roles as CEO and chairman respectively for two months as a non-executive independent board committee carries out a review of the allegations made against them.

To gain some confidence, the committee itself probably will need a few external members to be appointed.

All said and done, the investigations could provide the two founders the platform to state their case which the SFO investigation failed to do.

The duo stated that it was a clear violation of the fundamental legal principle of fairness and access to justice.

Bhupinder Singh is the corporate desk editor of The Malaysian Reserve.


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