Sunday, July 26, 2009

AirAsia X CEO backs merger with AirAsia Bhd

23 July 2009

Azran: Merger will let AirAsia tap into long-haul markets

SEPANG: A merger between AirAsia X and AirAsia Bhd makes business sense and the combined balance sheet would make sourcing for future funding much easier, said AirAsia X chief executive officer Azran Osman-Rani.

“It would be difficult for AirAsia in the future if it did not have trunk routes as (this) is where the traffic volumes come from, so AirAsia needs growth from AirAsia X and the merger allows it to tap growth opportunities in the long-haul markets,” Azran told StarBiz in an interview.

“AirAsia cannot continue to just criss-cross and enter new markets, it needs a bigger base,’’ he added.

Given the nature of the business, which is counter-cyclical, a large base was necessary to balance the routes in peak and non-peak months, he said.

Azran Osman-Rani … ‘AirAsia needs growth from AirAsia X.’

That is why AirAsia X has to sell beyond Kuala Lumpur or else only 20% of the seats will be taken up. It has to sell destinations, be it in Malaysia or the region, and 80% of those travelling with AirAsia X use AirAsia to travel to Langkawi, Penang, Phuket or even Bali.

“That is why AirAsia needs growth from AirAsia X and for that greater control of AirAsia X is needed,’’ Azran said.

Recently, AirAsia group chief executive officer Datuk Seri Tony Fernandes was reported as saying his personal preference was for a merger of the two companies.

AirAsia has a 16% stake in AirAsia X and an option to increase it to 30%.

The remaining shareholders in AirAsia X are Aero Ventures Sdn Bhd (48%), the Virgin Group (16%), while Bahrain-based Manara Consortium and Japan-based Orix Corp hold the remaining 20%.

Aero Ventures is owned by Fernandes, Datuk Kamarudin Meranun, Datuk Kalimullah Hassan, Lim Kian Onn and former Air Canada chairman and CEO Robert Milton.

Fernandes and Meranun are controlling shareholders in AirAsia with a 30.7% stake via Tune Air Sdn Bhd.

Even though it is still at the idea stage, critics are already saying the merger is necessary to rescue AirAsia X as, to them, AirAsia is now subsidising AirAsia X.

“Rubbish, we can clearly dispute that. For the first quarter ended March 31, 2009 our net profit was RM18mil and we are net cashflow positive. We even had a little cash at RM3mil.

“We are in a very good position and on a much firmer footing and now is an interesting time to talk about merger,’’ Azran said.

Fernandes, in a separate interview with StarBiz recently, said the merger was merely his proposal but felt it was a good model. However, no decision has been made thus far.

“When we started AirAsia X, a lot of critics said we could not do it but AirAsia X has turned out to be a very cash-flow positive company. Azran will be going on a roadshow soon to explain so that people have a better understanding that this long-haul, low-cost model can work,’’ Fernandes said then, adding that the roadshow would cover Kuala Lumpur, Singapore, Hong Kong, New York and London.

A share swap is likely but Azran said AirAsia had an option to increase its stake from 16% to 30% and with that it could equity account its venture in AirAsia X.

“They can either put cash in and increase the stake from 16% to 30% or do a share swap. It is a decision only the shareholders can make and I am not privy to that,’’ he said.

Asked when the merger was likely to happen, he said: “I will be surprised if it happens this year. AirAsia X has not received any offer and the process cannot begin. We also have to appoint a valuer and AirAsia has to hold an EGM.’’

AirAsia X was last valued at RM1.3bil when Manara and Orix took up their stakes.

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