Tony’s AirAsia, to Privatise or Not to Privatise

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Jan 15 2008
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As an organization AirAsia Berhad (KLSE: AIRASIA, stock-code 5099) could easily be a role model or case study for many top executives on how a bankrupt company could be revived to become a profitable and most successful low-cost carrier in Asia. With the correct management and right business model the dead could rise from the grave. And Tony Fernandes is perhaps one of the most recognizable figures in the corporate world especially in the aviation field.

As much as he would like it, there’s something that Tony couldn’t do regardless of how excellent he is in managing and marketing AirAsia. He couldn’t control the stock prices of his flagship AirAsia, unless he enlists himself together with people like Vincent Tan to fry his own stocks. Unlike national carrier, Malaysia Airline System (KLSE: MAS, stock-code 3786), Tony knew the government will not bails his company should something happens. To ensure sustainability, AirAsia has its’ own fuel-hedging policy to ensure its’ profitability (and survival) which in turns depends very much on global oil prices; also to ensure the company is not wiped out due to the black gold’s volatility.

AirAsia stock chartHowever excessive hedging might not goes well with foreign shareholders such as T. Rowe Price International, Inc. who opted to dispose the AirAsia shares. Hence the speculation the frustrated Tony Fernandes might take the company private, to which he denied it yesterday. The CEO told Bloomberg in an interview that the airline has call options that will offset potential losses from an earlier derivative contract. He further added that AirAsia is shielded even if the oil prices hit $130 a barrel.

As such theoretically AirAsia had actually bought call options up to $130 a barrel to hedge against oil prices within six months. In other words, is Tony somehow awares that the oil prices could shoot up above $100 and even $130 in the next six months? If not could the call options bought rather excessive and speculative in nature? Maybe Tony is a buddy of President George Bush and knew that the US is going to rains Iran with Tomahawk missiles by then.

Bush and Tony are buddiesNevertheless nobody can blames Tony if he indeed decided to privatise AirAsia in the near future should the stock price remains at current gloomy level. But then airline industry is a risky business that even Warran Buffett would advise against investing.

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One of the reasons AirAsia share is “boring” is because of the high oil price. It is not a good time to invest in any airline stocks unless oil price eases. When will that happen? I am still waiting…

that’s the whole idea of the article … the dilemma of tony …

cheers …

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