AirAsia X to Finally Take-Off after Early Turbulence

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Jun 24 2007
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British billionaire Sir Richard Branson of Virgin Group is reported to be taking a stake in Malaysia’s new AirAsia long-haul budget airline. The Star newspaper which claimed it picked sources familiar with the negotiation reported that Branson would take a 20 percent stake in Fly Asian Express (FAX), teaming up with Asia’s aviation tycoon Tony Fernandes to run flights from Malaysia to China, Europe and Australia.

Currently, AirAsia Bhd (KLSE: AIRASIA, stock-code 5099) chief executive Fernandes has a 50 percent stake while his deputy Kamarudin Meranum owns 30 percent in FAX. The same report said Fernandes & Kamarudin would sell 20 percent of their stake to Branson, the founder of Virgin Group. Fernandes had previously denied Branson’s involvement. Branson’s Virgin group includes budget carriers Virgin Express and Virgin Blue.
FAX recently signed a contract for 15 wide-body A330-300 airliners from Airbus, with the first new A330 to be delivered in the third-quarter of 2008. Each aircraft costs 175 million dollars, and the purchase would be funded with a combination of borrowings and equity. FAX is scheduled to begin its long-haul flights to China and Australia from September 8, using three leased planes from the low-cost carrier terminal at Kuala Lumpur International Airport (KLIA) after the earlier plan to fly to Britain and China by July 2007 was delayed.
Tony Fernandes was the architect who turnaround the sick and bankrupt government-linked conglomerate DRB-Hicom’s (KLSE: DRBHCOM, stock-code 1619) Air Asia back in 2001 into the most successful discount airline in Asia, to the jealousy of even Singapore’s aviation industry. Since then numerous low-fair airlines were being setup but not one has near the success enjoyed by AirAsia.
If the news materialise, the plan by Tony to goes global will finally take off in a big way. To investors, foreign participation should be encouraged as a good sign to ensure AirAsia is in good hand and any sudden acquisition by certain government-link companies to eat-up a hard-built business entity (for easy fruits) could not be easily done, not that the government could not launch such action. But at least the government will think twice about “big-boy’s” retaliation should it decide to bully the owners. So, if Tony and Kamarudin sell 10 percent each to Sir Richard that would put Tony with 40% and Richard and Kamarudin 20 percent each. Tony-Richard team would hold a 60% stake which should be a comfortable management level to drive the company into the next phase.
But most importantly, with Richard’s entry, the Europe would be a smooth and easy market for FAX’s penetration. In fact Europe could be one of the most luxurious markets that would contribute to FAX bottom line. How would AirAsia stock react to the news after the opening bell comes Monday?
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