AirAsia Group restructuring

The AirAsia group is embarking on a corporate and organisational restructuring plan, which it says it aimed in part at giving shareholders a better understanding of its business model.

1st Jul 2010

The AirAsia group is embarking on a corporate and organisational restructuring plan, which it says it aimed in part at giving shareholders a better understanding of its business model.

AirAsia Chief Executive Officer Tony Fernandes says that, after more than two years of operations, the group has seen some dilution of Malaysia-based low-cost carrier (LCC) AirAsia’s business model.

“We recognise the need for AirAsia and long-haul LCC AirAsia X to remain focused on their respective markets,” Fernandes said. He noted that the reorganisation comes at the right time for AirAsia X to start on its next phase of expansion.

The programme will see AirAsia X becoming a separate entity and taking full responsibility for its operations, including recruitment and managing its own pilots, flight attendants and ground staff. There are plans to list AirAsia X on the stock exchange in the second half of 2011, subject to market conditions.
The size of the initial public offering and where the airline would be listed have yet to be decided on. The airline is reportedly planning to sell shares valued at about US$650 million.

Under a 30-year brand licence agreement, AirAsia X would continue to use the AirAsia brand after it becomes a stand-alone company.
Speculation was previously rife that AirAsia and AirAsia X would be merged.

“We studied in detail the options available and decided that it would be best for AirAsia X to be a stand-alone company and focus on its operations and expansion,” Fernandes said.

The move will eliminate concerns that AirAsia could end up funding AirAsia X’s operations. AirAsia X completed a RM100 million (US$31.25 million) rights issue recently to reduce its debt.

The carrier, which started operations in November 2007, operates a fleet of two Airbus A340-300s and six A330-300s. It will take delivery of three more A330-300s later this year, with another 16 to be delivered, along with ten A350s, on a staggered basis through to 2020.

AirAsia X posted annual profit of RM87 million for last year, on revenue of RM720 million. The airline hopes to double its revenue this year.

The carrier is 48 percent owned by Aero Ventures (AVSB), with AirAsia and Virgin Group each holding 16 percent, and Japan’s Orix Group and Bahrain-based Manara Consortium owning 10 percent each.

AVSB’s shareholders are Fernandes, Kamarudin Meranun, Kalimullah Hassan, Lim Kian Onn and former Air Canada Chairman and Chief Executive Officer Robert Milton.

In a separate development, AirAsia is in talks with Airbus to slow delivery of the remaining 105 out of 175 A320 single-aisle jetliners the carrier ordered. According to the initial schedule, AirAsia is to take delivery of the remaining aircraft at the rate of 22 a year through to 2015.

Fernandes says a rate of 12 aircraft a year would be ideal. The slowdown will stretch delivery through to 2019.

“AirAsia will not face a penalty with the slowdown in delivery,” Fernandes noted. AirAsia has already deferred delivery of its A320s twice.

After much debate, AirAsia has decided that its sister carriers Thai AirAsia and Indonesia AirAsia will fund their respective operations independently. The two airlines’ debt will be transferred from Malaysia to Thailand and Indonesia, respectively, through stock-market listings of both carriers.

No date has been fixed for the listings, but they are expected to happen in 2011. The move will enable each AirAsia unit to have its own cash flow.

Despite Thai AirAsia Chief Executive Officer Tassapon Bijiveld’s announcement that the airline’s profit for the first quarter soared 35 percent over the same period last year, the company’s outlook looks uncertain because of the unstable political situation in Thailand.

Tassapon declined to give details of the carrier’s profit. Indonesia AirAsia is being overshadowed by other LCCs operating in Indonesia, such as Lion Air, which has a firm grip on the country’s domestic market, and Mandala Airlines.

Asian Aviation at a glance