Kamarudin is in the process of selecting the institutions and the best deal for AirAsia’s proposed private placement.
JUST off a flight from London, Tan Sri Tony Fernandes met up with StarBizWeek senior editor of business B.K. SIDHU to talk about the funding for the RM1bil share placement he and his partner, Datuk Kamarudin Meranun, are subscribing to and other goings-on at the AirAsia group.
Name the institutions that you said are willing to lend you and Datuk Kamarudin Meranun money to take up the 559 million placement shares.
We are not in a position to do that. We have a lot of offers and since the announcement, new institutions have come in. My expertise is not in that, it’s (Datuk) Kamarudin (Meranun). He is in the process of selecting the institutions and the best deal. But it is encouraging to see two things: firstly, the share price going up, and secondly, the quality of institutions that see value in the transaction, which ultimately means value in AirAsia.
Are local institutions involved?
Of course, it is a range.
When do you expect to wrap up the funding?
I don’t know. Our shareholders’ meeting is on May 9 and we have two months after that to fund it. But we already have deals on the table, and we would not have made the announcement if we did not already have a deal on the table.
How much of the portion is in cash and debt?
I do not know. We have to see what comes up, what is the cost of the interest. If it is very low, then we go by that (the portion of debt will be higher).
How much cash do you have?
Something I would not reveal for a variety of reasons.
You are said to be highly geared ...
Does it matter? Why is this an issue? If we are highly geared, then who would want to lend us money in the first place? People say a lot of things when you are in the public eye. They say this and that. People also make a lot of insinuations ... the proof is really in the pudding.
Why did you take your eyes off AirAsia to focus on other businesses? Then came the GMT Research report talking about accounting irregularities ...
Leadership is not about staying there forever. Leadership is about making sure that if I get hit by a bus tomorrow, the company grows, and it is not dominated by CEOs. That has nothing to do with GMT.
GMT wrote stuff that I have said from the beginning was sensational.
I was deliberately planning a leadership succession.
After GMT, and more importantly QZ8051 (AirAsia Indonesia’s flight that crashed into the Java Sea on Dec 29, 2014), both of us, me and Kamarudin, felt that we should steer AirAsia (back). We see tremendous value and tremendous upside for AirAsia. So, it is a combination of both the factors, GMT and QZ that motivated us to get back.
That does not mean that we have to be here for the next 50 years. It has to evolve from the founders and beyond. But I still believe, me and Din are motivated, so we are focused on doing it.
But what upsets me most about GMT was that they said we were not transparent. How could they write a report like that because we were very transparent? We never hid the fact that we had problems in AirAsia Philippines and AirAsia Indonesia. We never hide the problems and issues.
But I would say this is the problem with the stock market sometimes. On one side, you are questioning me and saying people say we have too much cash. Six months ago, you were asking if we were going to have a rights issue to raise cash because GMT said we had too little cash.
Investors do not look at the long term. Ten years ago, people were saying why did we invest in AirAsia Thailand. But now, this company is worth almost the same as AirAsia Bhd although it took time to get to where it is. So, different countries have different issues and problems.
Ryanair, for example, does not have to show how Ryanair Poland or other units are doing. It is all part of Ryanair.
Actually, AirAsia Indonesia contributes tremendously to AirAsia Malaysia, which makes money from all the routes in Indonesia. India is also a very big market and it has a big role for AirAsia Malaysia and AirAsia Thailand, but we must look at AirAsia as one company.
Having said that, AirAsia Philippines and AirAsia Indonesia are well on the way to becoming the next AirAsia Thailand. As for AirAsia India, I have been very bullish about it. It will make money.
India is the second largest country by population. How can you not be bullish about that, with such tourism activities, diversity of cultures and such history? And we are the only foreign airline there and low cost at that. Such value there. You know how much people will pay to get into that market?
We now have a new management team there and they are all very bullish about the business.
And the rumours, especially for a brand like AirAsia, including about myself, will never stop, never cease. We rather just focus on the results.
What about your earnings outlook?
It appears positive at the moment. Another slight boost from the ringgit, it has strengthened since the past few weeks. Oil has remained low. But to me, oil and ringgit are secondary to demand. Demand seems quite strong at the moment. Obviously, Malindo Air is becoming a full-service carrier and KLIA2 is virtually our terminal, which helps. I think we have been able to create demand.
But the cloud in the skies is the constant lack of industry players looking at cost and efficiency, and that is something we need to sort out by the side.
It is not about airlines absorbing the cost, we need to keep our fares low to stimulate demand.
But if you keep pushing the cost factor up, we will show that every time the cost increases, the numbers will drop. AirAsia will stimulate air travel with low fares and Malaysia should not lose its advantage on low cost. The industry is doing well, but please do not kill the goose that lays the golden egg, which is low cost.
Nine months on, how has it been?
To be honest, if you look at our financial numbers nine months ago, they were very good as well. This is why sometimes with the financial community, they do not look deep enough into the numbers. I have often criticised the accountants for not making the accounts clear to the general public.
Our accounts should be consolidated. It is not that we cannot own 100% of the company, but these are the regulations and we have to change.
But I was never worried about the stock price as what goes down must go up. This is a good company, solid, and the best way to answer all this is with the results. We delivered profits in the fourth quarter and we are looking forward to delivering them in the first quarter of this year.
The beauty of AirAsia, as one banker put it, is the cream always rises to the top, and with AirAsia, it has been very resilient the past 14 years. Despite the negativity, we have remained focused. I do not believe that fundamentally anything has changed since the past nine months, then and now. Of course, for me, what a 2015 it was with QZ8051 and the GMT report.
What if there is another GMT-like report in the future?
We will stand up and take it, be open and transparent and the market will come back.
So what’s next?
AirAsia is a jewel, it is three businesses and potentially adding a fourth.
It is the passenger service business which generates a huge cash flow, the profitable ancillary business, and the equity business where we do partnerships with Expedia, ACE, etc.
Many companies have not realised the power of data and we are investing heavily to understand the customer so that we are able to offer a better experience by using data.
It will not be long before you log in to our website and it will be personalised and customised to your needs. We will be able to offer you deals, be it for travel, food, duty-free or even foreign exchange.
We are rich in data and there is huge potential for monetisation of that data. We are light years ahead of the competition on that and are excited about what our data scientists have created. We will have a tremendous amount of efficiency and potential to up-sell to our travellers and also make the travelling experience much easier and better. And finally, we have got an agreement with KLIA2 for mobile phone buys and check-in. It is about capturing customer behaviour and giving them what they want.
Essentially, the first 10 years of AirAsia was about building a brand and the next ten years about using technology to improve revenue, reduce cost and make flying a much better experience.
So, the value of AirAsia is really being missed. There is no business like AirAsia that stretches from India to Japan, has 70 million consumers and the data that we have.
Will you be getting more planes this year?
We still remain quite cautious, but a bit more than last year, about eight this year, with the first Neo in October. It comes with six more seats from 180 to 186. These are lightweight seats. The interior is much nicer with much more baggage space besides a 15% reduction in cost.
The total fleet in operation is 200 and on order is 306. The deliveries are for the next 10 years. Don’t forget a lot of new planes are up for replacement. Our first plane is coming up to 12 years.
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