I was rather disappointed about AirAsia's announcement on October 31, 2017 regarding irregularities at AirAsia India:
"The announcement is quite disappointing, both in size and in content. No timeline is mentioned, nor amount of money involved, no details are given (more information has been released through other channels than was announced).
Also AirAsia does not give a reason why shareholders were not informed before about this matter, the amount of money (allegedly the amount is around RM 13 Million) and the seriousness of the issues at hand seem to warrant that."
AirAsia made today a new announcement in this matter:
"..... as a result of investigations by AirAsia (India) Limited (AAIL) (which were conducted by an external agency), AAIL has been recommended to lodge a police report on the findings of the investigations. AAIL has consequently filed a police complaint before the competent authorities in Bengaluru, Karnataka, India on 9 November 2016. The police is investigating the matter. "
Why the delay of more than four months since the police complaint in making this announcement? No reason is given.
Showing posts with label AirAsia. Show all posts
Showing posts with label AirAsia. Show all posts
Wednesday, 22 March 2017
Sunday, 22 January 2017
AirAsia mentioned in Rolls-Royce bribery case (2)
The relevant documents on the website of the SFO (Serious Fraud Office from the UK) can be found in the following documents, the AirAsia case is referred to as "Count 12 - Malaysia Civil":
Deferred Prosecution Agreement – Statement of Facts – SFO v Rolls Royce PLC, paragraph 314 and further;
SFO -v- Rolls Royce judgment, paragraph 107 and further;
SFO -v- Rolls Royce Appendix A, paragraph 147 and further.
SFO -v- Rolls Royce Appendix B, detailing the financial sanction to be paid, in the AirAsia case being GBP 17 Million (RM 94 Million).
Deferred Prosecution Agreement – Statement of Facts – SFO v Rolls Royce PLC, paragraph 314 and further;
SFO -v- Rolls Royce judgment, paragraph 107 and further;
SFO -v- Rolls Royce Appendix A, paragraph 147 and further.
SFO -v- Rolls Royce Appendix B, detailing the financial sanction to be paid, in the AirAsia case being GBP 17 Million (RM 94 Million).
AirAsia mentioned in Rolls-Royce bribery case
Article from Malaysiakini (partially behind paywall), some snippets:
UK's Serious Fraud Office (SFO) has named AirAsia Group as one of several foreign parties involved in bribery cases with jet engine manufacturer Rolls-Royce PLC.
AirAsia Group, in an immediate response, told Malaysiakini that it had complied with procedures in its dealing with Rolls-Royce.
This was despite Rolls-Royce employees believing that the credits would lead the AirAsia Group executive to perform his function "improperly".
"This financial advantage was given at the request of the AirAsia group executive, in return for showing favour towards Rolls-Royce in the purchase of products and services provided by Rolls-Royce and its subsidiaries, including Total Care Agreement services to be supplied to AirAsia X, a subsidiary of AirAsia Group," it said.
It also alleged that there was an attempt to conceal the fact that the credits, given to AirAsia X in 2013, would be used for the private jet, which was unrelated to the AirAsia Group.
On Oct 17, 2012, a Rolls-Royce employee reported to the Rolls-Royce senior employee that the AirAsia Group executive was seeking to "make the corporate jet deal 'invisible' with its 'value covered within additional A330 Total Care Agreement charges" for AirAsia X".
On March 15, 2013, a Rolls-Royce employee reported to his senior that the AirAsia X senior employee, who had been negotiating for the Air Asia Group executive's private jet, wanted a "cash settlement that is off the record and not visible to the AirAsia X group".
The Rolls-Royce employee raised concern that it was "unethical and likely illegal" and would rather not handle the case.
The Rolls-Royce employee complained that the AirAsia X senior employee had avoided discussing the private jet in front of other AirAsia X or Rolls-Royce employees and refused to communicate via email about the matter unless it was verbally or on Blackberry Messenger, a secured chat application.
In an interview during the SFO's investigation, the Rolls-Royce employee said the AirAsia X senior employee went as far as suggesting that the Corporate Care entry fee for the private jet be secretly spread across other AirAsia X payments to Rolls-Royce.
"Rolls-Royce employees believe the relevance of the jet to the issuing of those credits was most likely to be concealed from AirAsia X executives by the AirAsia X senior employee.
The above sounds very worrisome and requires an official, much more detailed answer from AirAsia than given.
I have written before about the huge amount of RPTs between the different companies in the AirAsia group and also the privately owned companies. This gives rise to numerous conflict of interest situations.
If the holding company was listed, with all subsidiaries (like AirAsia, AirAsia X and the subsidiary owning the private airplane) 100% owned, then many problems (like the above mentioning in the Rolls-Royce bribery case) would not have existed in the first place.
UK's Serious Fraud Office (SFO) has named AirAsia Group as one of several foreign parties involved in bribery cases with jet engine manufacturer Rolls-Royce PLC.
AirAsia Group, in an immediate response, told Malaysiakini that it had complied with procedures in its dealing with Rolls-Royce.
This was despite Rolls-Royce employees believing that the credits would lead the AirAsia Group executive to perform his function "improperly".
"This financial advantage was given at the request of the AirAsia group executive, in return for showing favour towards Rolls-Royce in the purchase of products and services provided by Rolls-Royce and its subsidiaries, including Total Care Agreement services to be supplied to AirAsia X, a subsidiary of AirAsia Group," it said.
It also alleged that there was an attempt to conceal the fact that the credits, given to AirAsia X in 2013, would be used for the private jet, which was unrelated to the AirAsia Group.
On Oct 17, 2012, a Rolls-Royce employee reported to the Rolls-Royce senior employee that the AirAsia Group executive was seeking to "make the corporate jet deal 'invisible' with its 'value covered within additional A330 Total Care Agreement charges" for AirAsia X".
On March 15, 2013, a Rolls-Royce employee reported to his senior that the AirAsia X senior employee, who had been negotiating for the Air Asia Group executive's private jet, wanted a "cash settlement that is off the record and not visible to the AirAsia X group".
The Rolls-Royce employee raised concern that it was "unethical and likely illegal" and would rather not handle the case.
The Rolls-Royce employee complained that the AirAsia X senior employee had avoided discussing the private jet in front of other AirAsia X or Rolls-Royce employees and refused to communicate via email about the matter unless it was verbally or on Blackberry Messenger, a secured chat application.
In an interview during the SFO's investigation, the Rolls-Royce employee said the AirAsia X senior employee went as far as suggesting that the Corporate Care entry fee for the private jet be secretly spread across other AirAsia X payments to Rolls-Royce.
"Rolls-Royce employees believe the relevance of the jet to the issuing of those credits was most likely to be concealed from AirAsia X executives by the AirAsia X senior employee.
The above sounds very worrisome and requires an official, much more detailed answer from AirAsia than given.
I have written before about the huge amount of RPTs between the different companies in the AirAsia group and also the privately owned companies. This gives rise to numerous conflict of interest situations.
If the holding company was listed, with all subsidiaries (like AirAsia, AirAsia X and the subsidiary owning the private airplane) 100% owned, then many problems (like the above mentioning in the Rolls-Royce bribery case) would not have existed in the first place.
Friday, 25 November 2016
AirAsia's New Lease of Life
Interesting article by Bloomberg.
Some snippets:
AirAsia loses money at the operating level on ticket sales, just about makes it back on ancillary revenues, but makes its real money from selling and leasing back its own aircraft.
That makes plans by Group CEO Tony Fernandes to sell this golden goose rather unsettling. The unit could be separated as soon as December, he said earlier this year, and may fetch as much as $1 billion.
There would be some definite benefits. Investors have often looked askance at AirAsia's leasing business, particularly because many of its sale-and-leasebacks have been not to lessors but to its own affiliates in Indonesia, Thailand, the Philippines and India. AirAsia's stock shed more than half its value in less than three months last year after GMT Research issued a report criticizing the accounting used in such deals, though it has since more than recovered what was lost.
Putting the leasing unit at arm's length will both help Fernandes pay down debt, and remove the shadow GMT's report cast.
Still, any sale won't come without risks. Investors who've become accustomed to the comfortable cushion provided by all those lease earnings will find the business has less to fall back on if times grow leaner.
Some snippets:
AirAsia loses money at the operating level on ticket sales, just about makes it back on ancillary revenues, but makes its real money from selling and leasing back its own aircraft.
That makes plans by Group CEO Tony Fernandes to sell this golden goose rather unsettling. The unit could be separated as soon as December, he said earlier this year, and may fetch as much as $1 billion.
There would be some definite benefits. Investors have often looked askance at AirAsia's leasing business, particularly because many of its sale-and-leasebacks have been not to lessors but to its own affiliates in Indonesia, Thailand, the Philippines and India. AirAsia's stock shed more than half its value in less than three months last year after GMT Research issued a report criticizing the accounting used in such deals, though it has since more than recovered what was lost.
Putting the leasing unit at arm's length will both help Fernandes pay down debt, and remove the shadow GMT's report cast.
Still, any sale won't come without risks. Investors who've become accustomed to the comfortable cushion provided by all those lease earnings will find the business has less to fall back on if times grow leaner.
Monday, 31 October 2016
Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned (4)
AirAsia announced today the following:
The announcement is quite disappointing, both in size and in content. No timeline is mentioned, nor amount of money involved, no details are given (more information has been released through other channels than was announced).
Also AirAsia does not give a reason why shareholders were not informed before about this matter, the amount of money (allegedly the amount is around RM 13 Million) and the seriousness of the issues at hand seem to warrant that.
Furthermore, issues were raised in Mistry's email regarding "ethical concerns", probably regarding the amount of control that AirAsia has over AirAsia (India) and possibly regarding related party transactions of AirAsia (for instance the leasing of airplanes).
Also, the announcement reads "We refer to the query raised by Bursa Malaysia Securities Berhad on 28 October 2016", but no query has been uploaded on the Bursa Malaysia website, so we don't know what Bursa's exact questions were.
AirAsia loves to bask in the limelight when favourable information is available, which is of course allowed, but surely shareholders and interested parties deserve proper information when the information is less favourable.
Especially for a company that claims to have won two prizes for "Asia's Best Emerging Companies with regards to Corporate Governance" and "Best Managed Company, Best Corporate Governance, Best Investor Relations, and Most Committed to Strong Dividend Policy under The Annual Investor Poll by FinanceAsia.com".
Shareholders might want to ask the company at its next AGM regarding the commitment to "Strong Dividend Policy", AirAsia is not exactly known for its regular dividend payments.
Tata Sons has released the following official statement: "A statement from Tata Sons"
Powerful words, but rather lacking in details.
"It is a matter of deep regret that a communication marked confidential to Tata Sons board members has been made public in an unseemly and undignified manner."
One could also argue that the firing of Mistry and the way it was executed was "unseemly and undignified".
The announcement is quite disappointing, both in size and in content. No timeline is mentioned, nor amount of money involved, no details are given (more information has been released through other channels than was announced).
Also AirAsia does not give a reason why shareholders were not informed before about this matter, the amount of money (allegedly the amount is around RM 13 Million) and the seriousness of the issues at hand seem to warrant that.
Furthermore, issues were raised in Mistry's email regarding "ethical concerns", probably regarding the amount of control that AirAsia has over AirAsia (India) and possibly regarding related party transactions of AirAsia (for instance the leasing of airplanes).
Also, the announcement reads "We refer to the query raised by Bursa Malaysia Securities Berhad on 28 October 2016", but no query has been uploaded on the Bursa Malaysia website, so we don't know what Bursa's exact questions were.
AirAsia loves to bask in the limelight when favourable information is available, which is of course allowed, but surely shareholders and interested parties deserve proper information when the information is less favourable.
Especially for a company that claims to have won two prizes for "Asia's Best Emerging Companies with regards to Corporate Governance" and "Best Managed Company, Best Corporate Governance, Best Investor Relations, and Most Committed to Strong Dividend Policy under The Annual Investor Poll by FinanceAsia.com".
Shareholders might want to ask the company at its next AGM regarding the commitment to "Strong Dividend Policy", AirAsia is not exactly known for its regular dividend payments.
Tata Sons has released the following official statement: "A statement from Tata Sons"
Powerful words, but rather lacking in details.
"It is a matter of deep regret that a communication marked confidential to Tata Sons board members has been made public in an unseemly and undignified manner."
One could also argue that the firing of Mistry and the way it was executed was "unseemly and undignified".
Friday, 28 October 2016
Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned (3)
The Malaysian main stream media seems to be absent in reporting about the Cyrus Mistry, Tata and AirAsia affair (The Star did publish about AirAsia (a Reuters story), about their leasing unit in a very positive way).
The Edge did however report about the possble fraud: Ousted Tata chief claims fraud at AirAsia India
According to The Times of India "The Civil Aviation Ministry is keeping a close watch on developments related to the purported disclosures made by ousted Tata group chairman Cyrus Mistry about AirAsia India, where Tatas are a partner, and will act if something actionable is brought to its notice.".
The Edge did however report about the possble fraud: Ousted Tata chief claims fraud at AirAsia India
According to The Times of India "The Civil Aviation Ministry is keeping a close watch on developments related to the purported disclosures made by ousted Tata group chairman Cyrus Mistry about AirAsia India, where Tatas are a partner, and will act if something actionable is brought to its notice.".
Thursday, 27 October 2016
Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned (2)
Andy Mukherjee from Bloomberg has written about the controversy:
Ratan Tata Has a Case to Answer
Some snippets:
Cyrus Mistry's letter to the board that fired him as the chairman of Tata Sons Ltd. without so much as a thank-you note for his service is such a big hit on WhatsApp message groups that some publishers might already be dreaming of a tell-all book by the jilted Indian executive.
They'll have to wait. For now, the five-page missive, obtained by Bloomberg News Wednesday, contains all the clues there are for investors to try and unravel the mystery behind Mistry's sacking, a dismissal so summary that it must be "unique in the annals of corporate history," he says.
A few such hints of disappointment aside, Mistry's is not a whining memo. If anything, the parts where he shines a light on the sorry shape of some of the operating companies in the $100 billion empire -- not to mention the alleged lack of professionalism in the group's Bombay House headquarters (the dean of Harvard Business School acting as postman) -- should be an eyeopener.
Most investors have long believed that the conglomerate adheres to a stronger code of governance than other Indian family-run businesses. Now it's up to Ratan Tata to reassert that exceptionalism. The founding-family scion carried out the coup against Mistry, and has returned as interim chairman. But if he can't convince public shareholders and bondholders that the Tata group is more than the mere sum of his personal ambitions and idiosyncrasies, then a lasting discount could creep into valuations.
Related to Air Asia's Indian subsidiary, there has been criticism before, for instance here:
"Who really runs AirAsia India?"
One accusation (of several) is regarding the leasing of airplanes:
Other mails indicate that AirAsia India may have a received a raw deal while leasing aircraft from AirAsia Bhd. For instance, old Airbus A320s were priced almost the same as new ones. One A320, made in 2009, and registered as VT-BLR, was leased for $320,000 per month; another, VT-ATF, manufactured in 2014, was leased out for $315,788. The prices do not match the prevailing rates provided by an independent consultant. The leased cost of an Airbus A320 aircraft (February 2010 make) is about $235,000 per month. A 2013 make costs about $280,000, according to data from aviation consulting firm CAPA. Expensive aircraft can mar the costs of a start-up airline and Bhatia seems to have raised this in an email last April.
If the above is true, then the beneficiary would be the leasing unit of Air Asia, exactly the one they plan to spin off.
CLSA wrote about the issue of revenue recognition in their CG Watch 2016 report:
Air Asia is one of the rare home grown regional success stories. It really should start improving its corporate governance though. Being allegedly linked (in Cyrus Mistry's email) to "fraudulent transactions" and "ethical concerns" is embarrassing.
Ratan Tata Has a Case to Answer
Some snippets:
Cyrus Mistry's letter to the board that fired him as the chairman of Tata Sons Ltd. without so much as a thank-you note for his service is such a big hit on WhatsApp message groups that some publishers might already be dreaming of a tell-all book by the jilted Indian executive.
They'll have to wait. For now, the five-page missive, obtained by Bloomberg News Wednesday, contains all the clues there are for investors to try and unravel the mystery behind Mistry's sacking, a dismissal so summary that it must be "unique in the annals of corporate history," he says.
A few such hints of disappointment aside, Mistry's is not a whining memo. If anything, the parts where he shines a light on the sorry shape of some of the operating companies in the $100 billion empire -- not to mention the alleged lack of professionalism in the group's Bombay House headquarters (the dean of Harvard Business School acting as postman) -- should be an eyeopener.
Most investors have long believed that the conglomerate adheres to a stronger code of governance than other Indian family-run businesses. Now it's up to Ratan Tata to reassert that exceptionalism. The founding-family scion carried out the coup against Mistry, and has returned as interim chairman. But if he can't convince public shareholders and bondholders that the Tata group is more than the mere sum of his personal ambitions and idiosyncrasies, then a lasting discount could creep into valuations.
Related to Air Asia's Indian subsidiary, there has been criticism before, for instance here:
"Who really runs AirAsia India?"
One accusation (of several) is regarding the leasing of airplanes:
Other mails indicate that AirAsia India may have a received a raw deal while leasing aircraft from AirAsia Bhd. For instance, old Airbus A320s were priced almost the same as new ones. One A320, made in 2009, and registered as VT-BLR, was leased for $320,000 per month; another, VT-ATF, manufactured in 2014, was leased out for $315,788. The prices do not match the prevailing rates provided by an independent consultant. The leased cost of an Airbus A320 aircraft (February 2010 make) is about $235,000 per month. A 2013 make costs about $280,000, according to data from aviation consulting firm CAPA. Expensive aircraft can mar the costs of a start-up airline and Bhatia seems to have raised this in an email last April.
If the above is true, then the beneficiary would be the leasing unit of Air Asia, exactly the one they plan to spin off.
CLSA wrote about the issue of revenue recognition in their CG Watch 2016 report:
Air Asia is one of the rare home grown regional success stories. It really should start improving its corporate governance though. Being allegedly linked (in Cyrus Mistry's email) to "fraudulent transactions" and "ethical concerns" is embarrassing.
Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned
Article from the website of MSN:
"Cyrus Mistry is right; problems of the Tata Group were inherited, not of his making"
Some snippets:
Almost every newspaper article which has anything to say about Tata Sons and the upheaval this company witnessed at a board meeting on Monday, lays the blame at Cyrus Mistry's door. Not many commentators have found fault with Mistry's predecessor Ratan Tata, nor have they bothered to analyse how Mistry was given a troubled empire and was left to deal with the mess, with his hands tied.
According to most analysts, nothing that Mistry did in his short four-year tenure was right. He allegedly did not uphold the values that the Tatas have stood for, he moved slowly on the group's restructuring and worst of all he sold family jewels like the steel business in UK - these are some of the myriad allegations which have surfaced in the last 48 hours, after Mistry was sacked as Tata Sons' Chairman.
But was Mistry the sole reason behind the Tata group's sub-optimal workings - the group's debt was rising, profitability was suffering and was he squarely to be blamed for the NTT DoCoMo fiasco or the crisis at the group's steel unit in the UK? According to this piece in the Economic Times, Mistry has denied most of these allegations in a mail to Tata Sons after the momentous Monday meeting. He has also leveled serious charges against members of the board, besides rightfully pointing out the harm to the group's credibility from this sudden sacking.
As several industry watchers wonder about corporate governance practices and whether these were followed while the board sacked Mistry, it is pertinent to note that Mistry could be right on all counts actually. He is surely not to blamed, at least not entirely, for what went wrong in the Tata group's telecom business, in the group's miscalculations of forming two competing ventures in the field of aviation, in the foreign acquisition spree pre-dating Mistry's chairmanship which led to the group's debt pile expanding.
The brand image of Tatas was in complete contrast with the ultra low-cost offering of AirAsia India. Even as the JV was continuously plagued with allegations about undue influence of the Malaysian parent - Telestra, which was finally bought out by the Tatas earlier this year after a messy battle splashed all over the newspapers, the airline's expansion plans also suffered due to bickering among the shareholders. And while this low-cost venture was struggling, the Tatas went ahead and forged another venture, with Singapore Airlines, to form full-service carrier Vistara in January 2015. Again at Ratan Tata's behest. The two airlines now operate at the fringes of India's domestic aviation market in terms of market share.
"Cyrus Mistry is right; problems of the Tata Group were inherited, not of his making"
Some snippets:
Almost every newspaper article which has anything to say about Tata Sons and the upheaval this company witnessed at a board meeting on Monday, lays the blame at Cyrus Mistry's door. Not many commentators have found fault with Mistry's predecessor Ratan Tata, nor have they bothered to analyse how Mistry was given a troubled empire and was left to deal with the mess, with his hands tied.
According to most analysts, nothing that Mistry did in his short four-year tenure was right. He allegedly did not uphold the values that the Tatas have stood for, he moved slowly on the group's restructuring and worst of all he sold family jewels like the steel business in UK - these are some of the myriad allegations which have surfaced in the last 48 hours, after Mistry was sacked as Tata Sons' Chairman.
But was Mistry the sole reason behind the Tata group's sub-optimal workings - the group's debt was rising, profitability was suffering and was he squarely to be blamed for the NTT DoCoMo fiasco or the crisis at the group's steel unit in the UK? According to this piece in the Economic Times, Mistry has denied most of these allegations in a mail to Tata Sons after the momentous Monday meeting. He has also leveled serious charges against members of the board, besides rightfully pointing out the harm to the group's credibility from this sudden sacking.
As several industry watchers wonder about corporate governance practices and whether these were followed while the board sacked Mistry, it is pertinent to note that Mistry could be right on all counts actually. He is surely not to blamed, at least not entirely, for what went wrong in the Tata group's telecom business, in the group's miscalculations of forming two competing ventures in the field of aviation, in the foreign acquisition spree pre-dating Mistry's chairmanship which led to the group's debt pile expanding.
The interesting part for Malaysia and Singapore involves the airline business:
In the email, Mistry said that the group's foray into aviation through joint ventures with Air Asia BhD and Singapore Airlines was at the behest of Tata. In both cases he had been presented with a fait accompli. He is right on both counts. It was Ratan Tata's long standing dream to enter civil aviation business - something which he had tried to do unsuccessfully twice in the past and was finally able to accomplish with AirAsia BhD when the government eased rules for foreign airlines to pick up a stake in Indian carriers. The joint venture company was formed in 2013, surprisingly, as a three way arrangement where the Tatas picked up only 30 percent and a lesser known Indian company Telestra Tradeplace held 21 percent.
The brand image of Tatas was in complete contrast with the ultra low-cost offering of AirAsia India. Even as the JV was continuously plagued with allegations about undue influence of the Malaysian parent - Telestra, which was finally bought out by the Tatas earlier this year after a messy battle splashed all over the newspapers, the airline's expansion plans also suffered due to bickering among the shareholders. And while this low-cost venture was struggling, the Tatas went ahead and forged another venture, with Singapore Airlines, to form full-service carrier Vistara in January 2015. Again at Ratan Tata's behest. The two airlines now operate at the fringes of India's domestic aviation market in terms of market share.
Mistry probably did not bless the creation of two separate, competing companies in the same business - a business where margins are wafer thin and profitability remains a pipe dream - so it would be foolish to lay the blame at his door. No one has understood till date why two airline ventures were formed or why Tatas initially chose to be 'silent' partners in AirAsia India.
I have in my possession a PDF-file which might be the alleged email from Cyrus Mistry, the header of the email reads as follows:
I do not know if this document is authentic, some parts have been blacked out, others have been truncated.
The first paragraph:
The parts about Singapore Airlines and Air Asia:
One crore is equal to 10,000,000 Rupees (or 10,00,000 as they write in India), worth about RM 623,000 or SGD 208,000.
It will be interesting to see how this will pan out, the fight between Tata and Cyrus Mistry, and if the above email is indeed authentic.
Wednesday, 28 September 2016
AirAsia: were all parties at the EGM equally informed? (2)
Announcement from AirAsia:
" ..... that the Company and the Subscriber have entered into a third supplemental letter dated 27 September 2016 in respect of the Subscription Agreement to extend the Cut-off Date of 27 September 2016 for a further period of sixty (60) days and expiring on 26 November 2016, or such longer period as the Parties may mutually agree in writing."
" ..... that the Company and the Subscriber have entered into a third supplemental letter dated 27 September 2016 in respect of the Subscription Agreement to extend the Cut-off Date of 27 September 2016 for a further period of sixty (60) days and expiring on 26 November 2016, or such longer period as the Parties may mutually agree in writing."
The first announcement about this share placement was on April 1st, 2016, about half a year ago.
Basically what the founders of AirAsia have received is a free call option on 559 Million AirAsia shares.
With AirAsia not paying any dividend (in other words no loss by buying the shares later) and the Cut-off Date being extended several times (saving interest charges, at least a few Million RM per month), it looks like a rather sweet deal for the founders of AirAsia.
I wrote before about this placement.
Saturday, 28 May 2016
AirAsia: were all parties at the EGM equally informed?
AirAsia announced its latest quarterly results, the results were great, way above expectations and the share rose RM 0.28 to RM 2.40.
Yes, life can be good, that is, if you are a shareholder of AirAsia.
But life can be even better if you are allowed to buy 559 millions AirAsia shares at a price of RM 1.80.
And that is exactly what Tony Fernandez (Group CEO) and Kamarudin (Executive Chairman) are allowed to do through a private placement (PP). One of the largest I have seen on Bursa done by controlling shareholders.
On May 9, 2016 at the EGM non-interested shareholders approved the PP, as is required by the rules. So is everything above board?
Well ...... there is a nagging issue if all parties actually had the same information available at the EGM.
On one side surely Fernandez and Kamarudin must have known about the 2016/Q1 results, may be not in all detail yet, but at least the key numbers, and they must have known that the numbers were way better than expected by the analysts and the market.
On the other side, the non-interested shareholders were left in the dark, the official results were simply not yet announced, that would happen only about three weeks later.
According to data from Bloomberg analysts were surprised by the numbers: the results were 400% above expectation, pretty stunning.
Yes, life can be good, that is, if you are a shareholder of AirAsia.
But life can be even better if you are allowed to buy 559 millions AirAsia shares at a price of RM 1.80.
And that is exactly what Tony Fernandez (Group CEO) and Kamarudin (Executive Chairman) are allowed to do through a private placement (PP). One of the largest I have seen on Bursa done by controlling shareholders.
On May 9, 2016 at the EGM non-interested shareholders approved the PP, as is required by the rules. So is everything above board?
Well ...... there is a nagging issue if all parties actually had the same information available at the EGM.
On one side surely Fernandez and Kamarudin must have known about the 2016/Q1 results, may be not in all detail yet, but at least the key numbers, and they must have known that the numbers were way better than expected by the analysts and the market.
On the other side, the non-interested shareholders were left in the dark, the official results were simply not yet announced, that would happen only about three weeks later.
According to data from Bloomberg analysts were surprised by the numbers: the results were 400% above expectation, pretty stunning.
The authorities should look into this situation, shareholders are supposed to have roughly the same amount of information when making an informed decision. The possible insiders knowledge of the Q1/2016 results appears to be material. If there was indeed a clear information bias, then minority shareholders should have been protected.
As written before, the whole issue could have been easily avoided if the company had replaced the PP by a rights issue of the same size, allowing all shareholders to participate.
Saturday, 30 April 2016
AirAsia: why not a rights issue instead of a PP?
AirAisa announced that its founders Tony Fernandes and Kamarudin propose to increase their shareholding in the company by buying 559 million new shares in the company through a private placement.
The Star wrote an article about the issues at hand: "Who is bigger – Tony or AirAsia?"
First of all, I have never been a fan of private placements, rights issues are so much more fair, giving all shareholders a chance to participate. And if they don't want to participate (for instance because they don't have money at that moment), they can still sell the rights in the open market.
The rationale given in the prospectus is as follows (first paragraph):
I don't think the reasons given are strong: both the underwriting and the successful completion should be no issue since the 559 million shares to the founders are apparently already underwritten.
Secondly, it is stated that the issuance "indicates the continued commitment" of the founders "by making further substantial investments".
This would suggest that the founders have been doing this for a long time, increasing their stake in AirAsia by investing in new shares.
However, exactly the opposite has been the case, the founders have been disposing shares for a long, long time, and in huge quantities, more than 600,000,000 shares in total.
At the IPO Tune Air sold 86 million existing shares:
After the IPO in their 2005 annual year report they owned 1,045 million shares (44.8%), which they sold down in the open market to 529 million shares (18.9%) currently. Large disposals were made in 2005 and 2006, 2011 and 2014. There is not a single year in which the founders actually increased their shareholding.
That bags the question, why after twelve years of heavy selling do the founders now suddenly want to increase their shareholding in AirAsia? Surely the minority investors, who will get strongly diluted by the proposed private placement, deserve a proper explanation.
Lastly, there is the following, rather remarkable issue:
"..... why Tune Air, which is their holding company, is disposing its stake in the market at about RM2 prior to the AGM? It does not look good for them to get placement shares at RM1.84 when Tune Air is reducing its stake at RM2. To be fair, in announcements to Bursa Malaysia, Tune Air has stated that the shares disposed were in favour of Datuk Abdul Aziz Abu Bakar, who is one of the founders of AirAsia. "
I would suggest to replace the private placement by a rights issue of comparable size, to shore up the balance sheet.
And if the founders of AirAsia want to increase their stake, well, they can go ahead and buy the shares in the open market. If they can sell hundreds of millions of shares in the open market then surely they can also buy those quantities at the same venue.
The Star wrote an article about the issues at hand: "Who is bigger – Tony or AirAsia?"
First of all, I have never been a fan of private placements, rights issues are so much more fair, giving all shareholders a chance to participate. And if they don't want to participate (for instance because they don't have money at that moment), they can still sell the rights in the open market.
The rationale given in the prospectus is as follows (first paragraph):
I don't think the reasons given are strong: both the underwriting and the successful completion should be no issue since the 559 million shares to the founders are apparently already underwritten.
Secondly, it is stated that the issuance "indicates the continued commitment" of the founders "by making further substantial investments".
This would suggest that the founders have been doing this for a long time, increasing their stake in AirAsia by investing in new shares.
However, exactly the opposite has been the case, the founders have been disposing shares for a long, long time, and in huge quantities, more than 600,000,000 shares in total.
At the IPO Tune Air sold 86 million existing shares:
After the IPO in their 2005 annual year report they owned 1,045 million shares (44.8%), which they sold down in the open market to 529 million shares (18.9%) currently. Large disposals were made in 2005 and 2006, 2011 and 2014. There is not a single year in which the founders actually increased their shareholding.
That bags the question, why after twelve years of heavy selling do the founders now suddenly want to increase their shareholding in AirAsia? Surely the minority investors, who will get strongly diluted by the proposed private placement, deserve a proper explanation.
Lastly, there is the following, rather remarkable issue:
"..... why Tune Air, which is their holding company, is disposing its stake in the market at about RM2 prior to the AGM? It does not look good for them to get placement shares at RM1.84 when Tune Air is reducing its stake at RM2. To be fair, in announcements to Bursa Malaysia, Tune Air has stated that the shares disposed were in favour of Datuk Abdul Aziz Abu Bakar, who is one of the founders of AirAsia. "
I would suggest to replace the private placement by a rights issue of comparable size, to shore up the balance sheet.
And if the founders of AirAsia want to increase their stake, well, they can go ahead and buy the shares in the open market. If they can sell hundreds of millions of shares in the open market then surely they can also buy those quantities at the same venue.
Saturday, 28 November 2015
AirAsia's accounting issues (2)
I wrote before about this issue, more than four years ago:
"AirAsia had previously drawn criticism from many parties as to why it never equity accounted the losses suffered by its associates and there were calls for greater transparency over the financial numbers recorded by the associates. The airline subsequently explained that with AirAsia having written down to zero its investments for both TAA and IAA in AirAsia's balance sheet, it did not need to recognise any further losses made by TAA and IAA as it had no accounting obligation to make good on those losses."
I find the AirAsia's accounting much too aggressive. Thai AirAsia and PT Indonesia AirAsia are two strategic investments in which AirAsia has a large share (almost 50%) and to which AirAsia is lending large amounts of money. Conservative accounting would really require these losses of RM 254 million to be accounted for.
Finally, four years later, AirAsia had to recognize its previous losses in its Indonesian subsidiary when it announced its results:
From the options I gave above, it turned out to be the second option, AirAsia was forced by the Indonesian authorities to replenish the shareholders funds in its Indonesian subsidiary.
This one-off event dragged down the quarterly results substantially, the PBT was a loss of RM 462 Million, almost exactly the prior year absorbed losses.
I concluded my previous posting by:
There is still the other accounting issue, AirAsia has booked as "profits" RM 659 million deferred tax assets. This is tax it does not need to pay in the future if it makes profit. Again, a very aggressive way of accounting.
In other words, AirAsia is not accounting for losses that have occurred in its strategic investments, but it is accounting for possible future profits.
This does not seem right to me.
It still does not seem right to me, although I am not an accountant.
AirAsia did not incur those losses the last quarter, what they did was invest more money in their subsidiary.
By not recognizing the losses they have (in my opinion) artificially boosted their earnings over those years, but now they finally had to account for it (at least for their Indonesian subsidiary).
"AirAsia had previously drawn criticism from many parties as to why it never equity accounted the losses suffered by its associates and there were calls for greater transparency over the financial numbers recorded by the associates. The airline subsequently explained that with AirAsia having written down to zero its investments for both TAA and IAA in AirAsia's balance sheet, it did not need to recognise any further losses made by TAA and IAA as it had no accounting obligation to make good on those losses."
I find the AirAsia's accounting much too aggressive. Thai AirAsia and PT Indonesia AirAsia are two strategic investments in which AirAsia has a large share (almost 50%) and to which AirAsia is lending large amounts of money. Conservative accounting would really require these losses of RM 254 million to be accounted for.
There are several possible outcomes, in each of it AirAsia has to take the loss:
- Their Thai or Indonesian operation goes bankrupt, in this case AirAsia has to write off its loans
- The equity of their Thai or Indonesia operation is replenished, AirAsia has to write of its losses
- The Thai or Indonesian operation turns highly profitable, again AirAsia has to write of its previous losses against these profits
Finally, four years later, AirAsia had to recognize its previous losses in its Indonesian subsidiary when it announced its results:
From the options I gave above, it turned out to be the second option, AirAsia was forced by the Indonesian authorities to replenish the shareholders funds in its Indonesian subsidiary.
This one-off event dragged down the quarterly results substantially, the PBT was a loss of RM 462 Million, almost exactly the prior year absorbed losses.
I concluded my previous posting by:
There is still the other accounting issue, AirAsia has booked as "profits" RM 659 million deferred tax assets. This is tax it does not need to pay in the future if it makes profit. Again, a very aggressive way of accounting.
In other words, AirAsia is not accounting for losses that have occurred in its strategic investments, but it is accounting for possible future profits.
This does not seem right to me.
It still does not seem right to me, although I am not an accountant.
AirAsia did not incur those losses the last quarter, what they did was invest more money in their subsidiary.
By not recognizing the losses they have (in my opinion) artificially boosted their earnings over those years, but now they finally had to account for it (at least for their Indonesian subsidiary).
AirAsia X has booked RM 470 Million in "profits" due to deferred tax assets while it has not booked a single year of "normalized earnings" (corrected for one-off items) in its existence.
AirAsia and AirAsia X might have convinced their auditor who signed the accounts over those years, but they haven't convinced me. Surely this can not be the correct way to do things.
Sunday, 4 October 2015
Tony's Top Ten Tips
I have often been critical about AirAsia (and even more so regarding AirAsia X) in this blog, especially regarding the aggressive accounting and the convoluted corporate structure.
But I did like the entrepreneurial spirit and "can do" attitude of Tony Fernandez and his staff.
Tony was invited to speak at an event organised by Digital News Asia and didn't disappoint with his speech "What’s Next: Tony’s Top 10 Tips for Entrepreneurs".
I think they are great tips, so I will copy them here from the above link:
1) You don’t need to know everything
I came from the music business. I knew nothing about planes. To all the entrepreneurs out there, you don’t need to know everything about what you want to do. It’s all about the idea, it’s about passion, it’s about implementing it.
2) Just do it!
Don’t let anyone tell you that you can’t do it. You’ve got one life, so you can’t press the rewind button and say ‘I wished I had done that.’
So I recommend to all of you out there, just do it. Live your life to the utmost, be positive. If you fail, at least you have tried.
I have failed miserably at Formula One, but I have no regrets because I got to stand with the greats from Ferrari, McLaren, and others.
3) Passion is a key problem-solver
Dreams do come true. Don’t worry about failure. You have one life, make the most out of it. Nine times out of 10, if you have the passion, you will find a way to work through it.
4) Invest in marketing
If you have the greatest idea in the world, please, please, please put some money on marketing. This is because if you don’t put money on marketing, nobody is going to hear about your great idea.
There are so many great ideas that never took off because of a lack of marketing.
Marketing is not about the dollars, it is also about public relations (PR). In AirAsia, we had no money. So I ran around with a red cap on and said controversial things so that the press would always take a picture of me. That was our marketing in AirAsia’s early days.
We have been through so many issues, and marketing played a key role in overcoming them.
Remember SARS (severe acute respiratory syndrome)? At that time, nobody wanted to fly; we all thought we are going to die.
Everyone cut their advertising, but I told my guys not to cut because this was the best time to build our brand. In fact, we tripled our advertising and everyone looked at me and said, “Are you on drugs?” I said, no, it is the best time because no one else is advertising.
When the first Bali bomb attack happened, everyone cancelled their flights. I said to the guys, we cannot let the Bali route die. We must continue to fly.
So we came up with ‘Love Bali’ campaign, giving away 10,000 free seats, and it worked. All 10,000 seats were snapped up in like under one minute. And all those who got those seats told all their friends about it on social media. Your best advertisement is your customers.
5) Leverage social media
When Malaysians get a good deal, they will tell the whole world about it. So the 10,000 people who went and had a good time in Bali, told 10,000 people that they had a good time. That was the early gestation of AirAsia’s social media.
We realised the power of social media very early on, so when Facebook and Twitter came up, we latched onto them. We were early adopters. We now have 32 million people on our various social media platforms, and 7% of our business comes directly from social media.
The Bali campaign taught us that our best advertisements are our customers.
6) Don’t be scared of complaints
Complaints are actually free market research. Someone took the effort to write to you to tell you where things went wrong and how they should be improved. These are things that companies pay a lot of money for consultants to tell them that same thing.
So we treat every email preciously.
7) Focus on one image when it comes to branding
During the early days, there was the word ‘AirAsia’ and a logo of a bird in our branding.
If you look at the top brands in the world, there’s only one image that comes to your mind. When I say “Shell,” you think of the Shell logo. When I say “Coca-Cola,” you think of the word ‘Coke’ in italics, and when I say “Nike,” you think of the swoosh.
So, back to our earlier AirAsia brand, we said drop the bird – we felt it was facing the wrong way anyway – and we used ‘AirAsia’ as our logo. Just one image. Why spend double the money to promote two images?
We also dropped the blue and the green colours. I tried very hard not to go with red, because everyone thinks that I want to be Richard Branson [the Virgin Group founder and Fernandes’ former boss] ... but it was the best colour, so we picked red.
So yes, the colour does make a big difference!
8) Go on the ground
What I used to do – although I don’t do this anymore – was that once a month, I would carry bags, I would be a cabin crew [member], and also at the check-in counter.
I did this for two reasons: The first is that you can’t be an effective CEO (chief executive officer) unless you go on the ground to experience the real situation.
Here’s a true story. The baggage handling team told me that they needed belt loaders. I told them, “No, we can’t buy that as it’s too expensive.”
So one day when I was tasked to carry bags, they put me on one of the Indonesia flights. People who fly with us generally bring their house with them, but people who fly to Indonesia bring their neighbour’s house as well!
So there was a lot of bags. I broke my back in the process, and I told my team that they were right and I was wrong, and let’s buy the belt loaders.
If I didn’t do that [go on the ground] and just sat comfortably in the office, I would have made a wrong decision, damaged a lot of bags, and probably started a union.
The second reason [for going on the ground] is that I wanted to look for talent. I wasn’t looking for the talents from Oxford or Cambridge, I was looking for the Grade 3 SPM [O Levels equivalent] kind of guys who needed a second chance.
9) Never underestimate the potential of your staff
I broke all the rules in terms of hiring people. To me, as long as you have a dream, you can do anything.
There was an ex-cabin crew member – she came up to me one day and told me that her dream was to become a pilot. I told her to go for it.
Then she called me up one day and asked if she could take part in the Miss Thailand [beauty pageant], and I told her okay, as long as I get to use her photographs in our marketing materials.
She won the [Miss Universe Thailand] pageant and recently became a captain – so we are the only airline in the world with a Miss Thailand flying with us.
The moral of the story is that we have such a flat structure that she was able to tell me what her dreams were, and we were able to make a raw diamond into a diamond.
Another one of my boys, a baggage handler in Kuching, told me he wanted to become a pilot. I told him to go for it. He passed all the exams ... he had the top marks in the flying academy. Today, he is a captain.
We have many of such stories at AirAsia.
Your biggest assets, besides your ideas, are your people – because at the end of the day, it is the people who will deliver your ideas.
10) Data is king
We have a huge amount of data that we don’t know what to do with it, but everyone else wants our data ... so we figured it must be something very valuable and there must be an opportunity there.
We are investing in a few ventures. We plan to launch our own version of TripAdvisor, a travel dongle, a new YouTube-type of channel and more – data will be playing an essential role in these ventures. Data will be king.
Where is Ze Moola (the excellent, but inactive blog) often complained about the articles written about AirAsia. I guess Tony spilled the beans how those articles were conceived:
"Marketing is not about the dollars, it is also about public relations (PR). In AirAsia, we had no money. So I ran around with a red cap on and said controversial things so that the press would always take a picture of me. That was our marketing in AirAsia’s early days."
Journalists probably should have taken some distance there, but might have fallen too easily for the juicy story.
But I did like the entrepreneurial spirit and "can do" attitude of Tony Fernandez and his staff.
Tony was invited to speak at an event organised by Digital News Asia and didn't disappoint with his speech "What’s Next: Tony’s Top 10 Tips for Entrepreneurs".
I think they are great tips, so I will copy them here from the above link:
1) You don’t need to know everything
I came from the music business. I knew nothing about planes. To all the entrepreneurs out there, you don’t need to know everything about what you want to do. It’s all about the idea, it’s about passion, it’s about implementing it.
2) Just do it!
Don’t let anyone tell you that you can’t do it. You’ve got one life, so you can’t press the rewind button and say ‘I wished I had done that.’
So I recommend to all of you out there, just do it. Live your life to the utmost, be positive. If you fail, at least you have tried.
I have failed miserably at Formula One, but I have no regrets because I got to stand with the greats from Ferrari, McLaren, and others.
3) Passion is a key problem-solver
Dreams do come true. Don’t worry about failure. You have one life, make the most out of it. Nine times out of 10, if you have the passion, you will find a way to work through it.
4) Invest in marketing
If you have the greatest idea in the world, please, please, please put some money on marketing. This is because if you don’t put money on marketing, nobody is going to hear about your great idea.
There are so many great ideas that never took off because of a lack of marketing.
Marketing is not about the dollars, it is also about public relations (PR). In AirAsia, we had no money. So I ran around with a red cap on and said controversial things so that the press would always take a picture of me. That was our marketing in AirAsia’s early days.
We have been through so many issues, and marketing played a key role in overcoming them.
Remember SARS (severe acute respiratory syndrome)? At that time, nobody wanted to fly; we all thought we are going to die.
Everyone cut their advertising, but I told my guys not to cut because this was the best time to build our brand. In fact, we tripled our advertising and everyone looked at me and said, “Are you on drugs?” I said, no, it is the best time because no one else is advertising.
When the first Bali bomb attack happened, everyone cancelled their flights. I said to the guys, we cannot let the Bali route die. We must continue to fly.
So we came up with ‘Love Bali’ campaign, giving away 10,000 free seats, and it worked. All 10,000 seats were snapped up in like under one minute. And all those who got those seats told all their friends about it on social media. Your best advertisement is your customers.
5) Leverage social media
When Malaysians get a good deal, they will tell the whole world about it. So the 10,000 people who went and had a good time in Bali, told 10,000 people that they had a good time. That was the early gestation of AirAsia’s social media.
We realised the power of social media very early on, so when Facebook and Twitter came up, we latched onto them. We were early adopters. We now have 32 million people on our various social media platforms, and 7% of our business comes directly from social media.
The Bali campaign taught us that our best advertisements are our customers.
6) Don’t be scared of complaints
Complaints are actually free market research. Someone took the effort to write to you to tell you where things went wrong and how they should be improved. These are things that companies pay a lot of money for consultants to tell them that same thing.
So we treat every email preciously.
7) Focus on one image when it comes to branding
During the early days, there was the word ‘AirAsia’ and a logo of a bird in our branding.
If you look at the top brands in the world, there’s only one image that comes to your mind. When I say “Shell,” you think of the Shell logo. When I say “Coca-Cola,” you think of the word ‘Coke’ in italics, and when I say “Nike,” you think of the swoosh.
So, back to our earlier AirAsia brand, we said drop the bird – we felt it was facing the wrong way anyway – and we used ‘AirAsia’ as our logo. Just one image. Why spend double the money to promote two images?
We also dropped the blue and the green colours. I tried very hard not to go with red, because everyone thinks that I want to be Richard Branson [the Virgin Group founder and Fernandes’ former boss] ... but it was the best colour, so we picked red.
So yes, the colour does make a big difference!
8) Go on the ground
What I used to do – although I don’t do this anymore – was that once a month, I would carry bags, I would be a cabin crew [member], and also at the check-in counter.
I did this for two reasons: The first is that you can’t be an effective CEO (chief executive officer) unless you go on the ground to experience the real situation.
Here’s a true story. The baggage handling team told me that they needed belt loaders. I told them, “No, we can’t buy that as it’s too expensive.”
So one day when I was tasked to carry bags, they put me on one of the Indonesia flights. People who fly with us generally bring their house with them, but people who fly to Indonesia bring their neighbour’s house as well!
So there was a lot of bags. I broke my back in the process, and I told my team that they were right and I was wrong, and let’s buy the belt loaders.
If I didn’t do that [go on the ground] and just sat comfortably in the office, I would have made a wrong decision, damaged a lot of bags, and probably started a union.
The second reason [for going on the ground] is that I wanted to look for talent. I wasn’t looking for the talents from Oxford or Cambridge, I was looking for the Grade 3 SPM [O Levels equivalent] kind of guys who needed a second chance.
9) Never underestimate the potential of your staff
I broke all the rules in terms of hiring people. To me, as long as you have a dream, you can do anything.
There was an ex-cabin crew member – she came up to me one day and told me that her dream was to become a pilot. I told her to go for it.
Then she called me up one day and asked if she could take part in the Miss Thailand [beauty pageant], and I told her okay, as long as I get to use her photographs in our marketing materials.
She won the [Miss Universe Thailand] pageant and recently became a captain – so we are the only airline in the world with a Miss Thailand flying with us.
The moral of the story is that we have such a flat structure that she was able to tell me what her dreams were, and we were able to make a raw diamond into a diamond.
Another one of my boys, a baggage handler in Kuching, told me he wanted to become a pilot. I told him to go for it. He passed all the exams ... he had the top marks in the flying academy. Today, he is a captain.
We have many of such stories at AirAsia.
Your biggest assets, besides your ideas, are your people – because at the end of the day, it is the people who will deliver your ideas.
10) Data is king
We have a huge amount of data that we don’t know what to do with it, but everyone else wants our data ... so we figured it must be something very valuable and there must be an opportunity there.
We are investing in a few ventures. We plan to launch our own version of TripAdvisor, a travel dongle, a new YouTube-type of channel and more – data will be playing an essential role in these ventures. Data will be king.
Where is Ze Moola (the excellent, but inactive blog) often complained about the articles written about AirAsia. I guess Tony spilled the beans how those articles were conceived:
"Marketing is not about the dollars, it is also about public relations (PR). In AirAsia, we had no money. So I ran around with a red cap on and said controversial things so that the press would always take a picture of me. That was our marketing in AirAsia’s early days."
Journalists probably should have taken some distance there, but might have fallen too easily for the juicy story.
Wednesday, 30 September 2015
GrabTaxi worth more than AirAsia? (2)
I wrote about this issue before.
Since then GrabTaxi (EasyTaxi in Malaysia) raised another round of USD 350 million. I estimate at a valuation of about USD 2 billion, or about RM 9 billion.
AirAsia has a marketcap of about RM 3.6 billion, AirAsiaX of about RM 800 million, so together these two companies are valued at about half the valuation of a four year old company, which is basically an apps.
I don't make any value judgement here, just observe something that sounds interesting and may be controversial.
Apparently Tony Fernandes also noticed the high valuation of GrabTaxi and some other "unicorns" (start-up companies valued at above USD 1 Billion). At a recent event, he mentioned:
“Essentially, we are an Internet company. We see ourselves as an Internet company. We have a tremendous amount of Internet potential,” he told the audience at Digital News Asia’s inaugural What's Next conference in Cyberjaya yesterday (Sept 29).
“More than 20% of our business comes from ancillary income,” he said.
The AirAsia Group has invested in or kicked off several ventures, such as AAE Travel (a joint-venture between AirAsia and Expedia); the Asian Aviation Centre of Excellence; Think Big Digital (a joint-venture between AirAsia and Tune Money which operates the AirAsia BIG loyalty programme); and it also has a 40% stake in Tune Money.
These are not Fernandes’ only ventures. He also owns the Tune Group which has investments in Tune Talk, Tune Hotels, Tune Protect, Tune Studios, Tune Labs (a venture company looking at tech startups), and more.
Unsurprisingly, the Internet plays an essential part in most, if not all, of these businesses. Indeed, many industry pundits have credited Tony and AirAsia for breaking down e-commerce barriers in Malaysia.
Does that mean that Tony wants an internet valuation for his company, not an airline valuation? If so, will he get that?
Time will tell.
Since then GrabTaxi (EasyTaxi in Malaysia) raised another round of USD 350 million. I estimate at a valuation of about USD 2 billion, or about RM 9 billion.
AirAsia has a marketcap of about RM 3.6 billion, AirAsiaX of about RM 800 million, so together these two companies are valued at about half the valuation of a four year old company, which is basically an apps.
I don't make any value judgement here, just observe something that sounds interesting and may be controversial.
Apparently Tony Fernandes also noticed the high valuation of GrabTaxi and some other "unicorns" (start-up companies valued at above USD 1 Billion). At a recent event, he mentioned:
“Essentially, we are an Internet company. We see ourselves as an Internet company. We have a tremendous amount of Internet potential,” he told the audience at Digital News Asia’s inaugural What's Next conference in Cyberjaya yesterday (Sept 29).
“More than 20% of our business comes from ancillary income,” he said.
The AirAsia Group has invested in or kicked off several ventures, such as AAE Travel (a joint-venture between AirAsia and Expedia); the Asian Aviation Centre of Excellence; Think Big Digital (a joint-venture between AirAsia and Tune Money which operates the AirAsia BIG loyalty programme); and it also has a 40% stake in Tune Money.
These are not Fernandes’ only ventures. He also owns the Tune Group which has investments in Tune Talk, Tune Hotels, Tune Protect, Tune Studios, Tune Labs (a venture company looking at tech startups), and more.
Unsurprisingly, the Internet plays an essential part in most, if not all, of these businesses. Indeed, many industry pundits have credited Tony and AirAsia for breaking down e-commerce barriers in Malaysia.
Does that mean that Tony wants an internet valuation for his company, not an airline valuation? If so, will he get that?
Time will tell.
Tuesday, 15 September 2015
AirAsia: A turbulent patch
Well balanced article in The Economist about AirAsia. One snippet:
"..... AirAsia may never manage to grab more than a smallish slice of the Indonesian market, by far the region’s largest, reckons Shukor Yusof of Endau Analytics, a consulting firm. That would be a bitter blow to its ambitions. It might also mean that LionAir—which has plans to increase its fleet by two-thirds before 2018—overtakes it as the region’s biggest carrier. AirAsia’s “rocket-ship trajectory” is over, confirms CAPA’s Mr Sobie. But a steadier airline may result."
"..... AirAsia may never manage to grab more than a smallish slice of the Indonesian market, by far the region’s largest, reckons Shukor Yusof of Endau Analytics, a consulting firm. That would be a bitter blow to its ambitions. It might also mean that LionAir—which has plans to increase its fleet by two-thirds before 2018—overtakes it as the region’s biggest carrier. AirAsia’s “rocket-ship trajectory” is over, confirms CAPA’s Mr Sobie. But a steadier airline may result."
Wednesday, 8 July 2015
AirAsia X lodges complaint with SC
According to this article in The Star, AirAsia X has lodged a complaint against GMT Research with the Securities Commission.
First of all, I have to admit that I haven't read the original article by GMT Research (I have read though the freely available articles).
Secondly, filing a complaint with the SC is not akin to suing a company, everybody can file a complaint with either SC or BM.
The article is not very specific about the reasons behind the complaint, only one item is mentioned:
“GMT has accused AAX, among others, of practising or allowing profit shifting between AirAsia Bhd (AAB) and AAX by way of transfer pricing of the service fees and costs charged by AAB,” it said.
A reference is made to article 177 of the CMSA:
In other words, even if what GMT wrote was not correct (I am not sure about that, no concrete example with supporting evidence is given), then still it must be proven that either GMT didn't care that the information was wrong, or that they knew that the information was wrong. Looks to me rather difficult to prove.
For two more links from GMT Research about AirAsia: here and here.
AirAsia and AirAsia X are probably the most hyped companies listed on Bursa, the public is bombarded by PR campaigns on a weekly (sometimes daily) basis. Many times "rumours" are picked up by the media, which are then denied a few days later. Twice (free) PR, all very much in the Richard Branson style.
Both AirAsia and AirAsia X have however hugely disappointed in the last few years, despite using very aggressive accounting techniques.
Naturally, that combination will attract critical comments, may be not so much in Malaysia, where the mainstream media seems rather cosy with AirAsia (AirAsia is of course a large advertiser) but more so outside.
It is (at least for me) disappointing when one of the most hyped companies, having one of the worst post IPO performances, can't stand some critical comments.
Especially given the recent events in Malaysia, where "shooting the messenger" is (as always) very widespread.
First of all, I have to admit that I haven't read the original article by GMT Research (I have read though the freely available articles).
Secondly, filing a complaint with the SC is not akin to suing a company, everybody can file a complaint with either SC or BM.
The article is not very specific about the reasons behind the complaint, only one item is mentioned:
“GMT has accused AAX, among others, of practising or allowing profit shifting between AirAsia Bhd (AAB) and AAX by way of transfer pricing of the service fees and costs charged by AAB,” it said.
A reference is made to article 177 of the CMSA:
In other words, even if what GMT wrote was not correct (I am not sure about that, no concrete example with supporting evidence is given), then still it must be proven that either GMT didn't care that the information was wrong, or that they knew that the information was wrong. Looks to me rather difficult to prove.
For two more links from GMT Research about AirAsia: here and here.
AirAsia and AirAsia X are probably the most hyped companies listed on Bursa, the public is bombarded by PR campaigns on a weekly (sometimes daily) basis. Many times "rumours" are picked up by the media, which are then denied a few days later. Twice (free) PR, all very much in the Richard Branson style.
Both AirAsia and AirAsia X have however hugely disappointed in the last few years, despite using very aggressive accounting techniques.
Naturally, that combination will attract critical comments, may be not so much in Malaysia, where the mainstream media seems rather cosy with AirAsia (AirAsia is of course a large advertiser) but more so outside.
It is (at least for me) disappointing when one of the most hyped companies, having one of the worst post IPO performances, can't stand some critical comments.
Especially given the recent events in Malaysia, where "shooting the messenger" is (as always) very widespread.
Thursday, 2 July 2015
GrabTaxi worth more than AirAsia?
According to this article in the Wall Street Journal:
More cash is pouring into the increasingly competitive ride-hailing business in Asia, fueling local competitors to global market leader Uber Technologies Inc.
Southeast Asia-focused ride-hailing app GrabTaxi is getting an infusion of over $200 million in fresh capital in its latest fundraising round led by U.S. hedge fund Coatue Management LLC, according to a person familiar with the situation. The investment values the company at over $1.5 billion including the fresh capital from the latest fundraising, according to the person.
USD 1.5 Billion is equivalent to RM 5.7 Billion, clearly higher than the current marketcap of AirAsia, which is RM 4.4 Billion.
Is that really fair, if we look at revenue, profits, assets, barriers to entry (landing rights) etc?
I have doubts about that, but time will tell.
Regarding a company operating in the same industry (but on a global level), Uber, an article asks the question:
"Uber is seeing $470M in operating losses: Can it ever be profitable?".
More cash is pouring into the increasingly competitive ride-hailing business in Asia, fueling local competitors to global market leader Uber Technologies Inc.
Southeast Asia-focused ride-hailing app GrabTaxi is getting an infusion of over $200 million in fresh capital in its latest fundraising round led by U.S. hedge fund Coatue Management LLC, according to a person familiar with the situation. The investment values the company at over $1.5 billion including the fresh capital from the latest fundraising, according to the person.
USD 1.5 Billion is equivalent to RM 5.7 Billion, clearly higher than the current marketcap of AirAsia, which is RM 4.4 Billion.
Is that really fair, if we look at revenue, profits, assets, barriers to entry (landing rights) etc?
I have doubts about that, but time will tell.
Regarding a company operating in the same industry (but on a global level), Uber, an article asks the question:
"Uber is seeing $470M in operating losses: Can it ever be profitable?".
Tuesday, 23 June 2015
GMT on AirAsia: "New Dog, Old Tricks" (2)
AirAsia has responded, from The Star:
AirAsia rebuts claims it condones "accounting gimmicks"
AirAsia believes that consolidating its associate companies would reflect its actual performance and financial position. However, it is not allowed to have legal control or legal power over its associate companies. This is due to aviation regulations in Indonesia, the Philippines, Thailand and India. “Power in practice is, however, not legal control,” it said. It added that any change in its relationship with the associate companies, that gives AirAsia legal control, would result in a loss of the associates’ airline operating licences.
That might be true from a legal point of view, but what would prevent AirAsia to present its consolidated numbers anyhow, in an added commentary?
I would like to refer to the Owner's Manual from Berkshire Hathaway, paragraph 6:
We attempt to offset the shortcomings of conventional accounting by regularly reporting "look-through" earnings (though, for special and nonrecurring reasons, we occasionally omit them). The look-through numbers include Berkshire's own reported operating earnings, excluding capital gains and purchase-accounting adjustments (an explanation of which occurs later in this message) plus Berkshire's share of the undistributed earnings of our major investees - amounts that are not included in Berkshire's figures under conventional accounting. From these undistributed earnings of our investees we subtract the tax we would have owed had the earnings been paid to us as dividends. We also exclude capital gains, purchase-accounting adjustments and extraordinary charges or credits from the investee numbers.
In AirAsia's case, the share of earnings of its investees would be hugely negative for the past years. Including them in "look-through" earnings would have given a more realistic picture of its performance.
AirAsia rebuts claims it condones "accounting gimmicks"
AirAsia believes that consolidating its associate companies would reflect its actual performance and financial position. However, it is not allowed to have legal control or legal power over its associate companies. This is due to aviation regulations in Indonesia, the Philippines, Thailand and India. “Power in practice is, however, not legal control,” it said. It added that any change in its relationship with the associate companies, that gives AirAsia legal control, would result in a loss of the associates’ airline operating licences.
That might be true from a legal point of view, but what would prevent AirAsia to present its consolidated numbers anyhow, in an added commentary?
I would like to refer to the Owner's Manual from Berkshire Hathaway, paragraph 6:
We attempt to offset the shortcomings of conventional accounting by regularly reporting "look-through" earnings (though, for special and nonrecurring reasons, we occasionally omit them). The look-through numbers include Berkshire's own reported operating earnings, excluding capital gains and purchase-accounting adjustments (an explanation of which occurs later in this message) plus Berkshire's share of the undistributed earnings of our major investees - amounts that are not included in Berkshire's figures under conventional accounting. From these undistributed earnings of our investees we subtract the tax we would have owed had the earnings been paid to us as dividends. We also exclude capital gains, purchase-accounting adjustments and extraordinary charges or credits from the investee numbers.
In AirAsia's case, the share of earnings of its investees would be hugely negative for the past years. Including them in "look-through" earnings would have given a more realistic picture of its performance.
Saturday, 20 June 2015
GMT on AirAsia: "New Dog, Old Tricks"
On Vimeo a video is released giving some (but not all) of the issues that GMT Research has raised on AirAsia.
The video can be found here.
It is reasonably detailed and I recommend the viewer to pause the image when numbers are being shown.
Tony Fernandes has immediately described the report as "rubbish", and that he will proof the writers of the report wrong. Not an unexpected reaction.
However, what is needed is a more sophisticated reaction, not the kind of reaction from Nobel (listed in Singapore).
Airasia has announced a pretty decent reply a few days ago, however, there are some shortcomings.
First of all it prides it self on transparency, but good transparency is something else than good governance or good accounting.
For good governance for instance a neat corporate structure is needed, something AirAsia (and its mother company) doesn't have. The amount of related party transaction between the many parties (each with different shareholders) is simply overwhelming.
Regarding the good accounting: AirAsia has always accounted very aggressively, in my opinion much too aggressively, and in AirAsia X's case to an extent that is doesn't make sense at all (deferred tax when it continues to make losses).
Regarding the first part (the consolidation has just not been possible), surely it could have been presented in some form or shape in the year report, what the consequences would be of consolidating.
Good however that from the second quarter onwards the company will include the numbers.
For me, AirAsia has always relied much too much on a combination of financial engineering and marketing hyphe, something I don't like at all.
This report by GMT is a refreshing, different approach from the usual stuff we normally read in the Malaysian media.
Who will be right at the end of the day? I guess we have to wait and see.
AirAsia is however warned, and could thus take appropriate actions, for instance by raising more capital.
Another unrelated but interesting video by GMT can be found here, some of its contents:
The video can be found here.
It is reasonably detailed and I recommend the viewer to pause the image when numbers are being shown.
Tony Fernandes has immediately described the report as "rubbish", and that he will proof the writers of the report wrong. Not an unexpected reaction.
However, what is needed is a more sophisticated reaction, not the kind of reaction from Nobel (listed in Singapore).
Airasia has announced a pretty decent reply a few days ago, however, there are some shortcomings.
First of all it prides it self on transparency, but good transparency is something else than good governance or good accounting.
For good governance for instance a neat corporate structure is needed, something AirAsia (and its mother company) doesn't have. The amount of related party transaction between the many parties (each with different shareholders) is simply overwhelming.
Regarding the good accounting: AirAsia has always accounted very aggressively, in my opinion much too aggressively, and in AirAsia X's case to an extent that is doesn't make sense at all (deferred tax when it continues to make losses).
Regarding the first part (the consolidation has just not been possible), surely it could have been presented in some form or shape in the year report, what the consequences would be of consolidating.
Good however that from the second quarter onwards the company will include the numbers.
For me, AirAsia has always relied much too much on a combination of financial engineering and marketing hyphe, something I don't like at all.
This report by GMT is a refreshing, different approach from the usual stuff we normally read in the Malaysian media.
Who will be right at the end of the day? I guess we have to wait and see.
AirAsia is however warned, and could thus take appropriate actions, for instance by raising more capital.
Another unrelated but interesting video by GMT can be found here, some of its contents:
- WorldCom & Enron explained
- Goodwill & impairments
- CP ALL: A very over-leveraged buyout
- Youku: Growth through acquisitions
- Curious Assets
- Wilmar: Leveraged Chinese carry trade
- Reliance Infrastructure: Capitalising expenses?
- Chinese Concessionaires: Paper profits
- P&G H&H: Corporate governance
- Larsen & Toubro: Cutting off the lifeline
Friday, 12 June 2015
AirAsia drops 10%, due to research report?
The share price of AirAsia dropped yesterday about 10%, back to its 2010 levels. According to The Star's article:
".... on concerns about the outbreak of the Middle East Respiratory Syndrome (MERS) and its impact on air travel but greater concerns could be about the weak ringgit.
AirAsia could also be hit by the depreciating ringgit as sizeable fixed costs are in US dollar while bulk of earnings are in ringgit, analysts said."
I received news from a reliable source that a research report from Gillem Tulloch of GMT research might (also) have to do with it.
I don't have the report, nor is it publicly available (behind paywall).
According to one broker (edited):
"The issue raised include the ability of Indonesia AirAsia (IAA) and AirAsia Philippines (AAP) to repay their debts of RM 2.8 Billion.
Tony strongly believes he can get back around one billion ringgit after he locks in new investors in both IAA and AAP. Within the next three months. The process is further ahead in the Philippines than in Indonesia. But until we see the one billion ringgit, there will always be concerns and risks that the deal could fall apart. All I have right now is Tony's word that things are progressing well.
... the longer-term issue is, whether AirAsia will be able to get IAA and AAP to be sustainably profitable.
With foreign shareholding >50%, it's vulnerable to a massive sell off. ".
The accounting issues are not new, I wrote for instance almost four years about the same (here).
We will see how this will pan out, when more details about the research report will be published, and AirAsia will react to that.
Hopefully in a more professional way than the previous time (here and here):
It looks like Paul Dewberry was right after all and Tony Fernandes could not prove him wrong.
To end this posting on a positive note, the board of directors of AirAsia X has suspended their wages for 2015, which is a great gesture. I hope other Bursa listed companies follow suit, when the need arises.
".... on concerns about the outbreak of the Middle East Respiratory Syndrome (MERS) and its impact on air travel but greater concerns could be about the weak ringgit.
AirAsia could also be hit by the depreciating ringgit as sizeable fixed costs are in US dollar while bulk of earnings are in ringgit, analysts said."
I received news from a reliable source that a research report from Gillem Tulloch of GMT research might (also) have to do with it.
I don't have the report, nor is it publicly available (behind paywall).
According to one broker (edited):
"The issue raised include the ability of Indonesia AirAsia (IAA) and AirAsia Philippines (AAP) to repay their debts of RM 2.8 Billion.
Tony strongly believes he can get back around one billion ringgit after he locks in new investors in both IAA and AAP. Within the next three months. The process is further ahead in the Philippines than in Indonesia. But until we see the one billion ringgit, there will always be concerns and risks that the deal could fall apart. All I have right now is Tony's word that things are progressing well.
... the longer-term issue is, whether AirAsia will be able to get IAA and AAP to be sustainably profitable.
With foreign shareholding >50%, it's vulnerable to a massive sell off. ".
The accounting issues are not new, I wrote for instance almost four years about the same (here).
We will see how this will pan out, when more details about the research report will be published, and AirAsia will react to that.
Hopefully in a more professional way than the previous time (here and here):
It looks like Paul Dewberry was right after all and Tony Fernandes could not prove him wrong.
To end this posting on a positive note, the board of directors of AirAsia X has suspended their wages for 2015, which is a great gesture. I hope other Bursa listed companies follow suit, when the need arises.
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