AirAsia CEO pledges to prove critics wrong

Punishing year for Malaysian entrepreneur who is battling to keep his dream alive GMT claimed in the report that Malaysia-listed AirAsia has inflated group profits by recording earnings derived from leasing aircraft to its troubled, minorityowned associat

Acatastrophic crash at his Indonesian airline, the relegation of his English football team, an embarrassing exit from Formula One motor racing, and now an attack on accounting practices at AirAsia, the crown jewel of his business empire.

It has been a punishing year for ebullient Malaysian entrepreneur Tony Fernandes, who is battling to keep alive his dream to build an Asian lowcost carrier that can match the success of Southwest Airlines in the US and Ryanair in Europe.

Fernandes has rejected a highly critical report by GMT, an independent equity research firm, that alleged that AirAsia is “teetering on default”.

The company’s shares have lost nearly a quarter of their value since the GMT report was released on June 10, and are languishing at a five-year low. GMT claimed in the report that Malaysia-listed AirAsia has inflated group profits by recording earnings derived from leasing aircraft to its troubled, minority-owned associate airlines in Indonesia and the Philippines.

At the same time, the parent group has had to extend ever more credit to these associate airlines, as their losses mounted because of tough competition from dominant incumbents, GMT alleged.

With the Indonesian and Philippines’ airlines unable to repay the parent, receivables owed to AirAsia by its associates, joint ventures and related parties jumped to 2.5 billion Malaysian ringgit (Dh2.4 billion, $665 million) in 2014, from just 1.3 billion ringgit in the previous year, according to GMT, leaving the group with a net debt-to-equity ratio of 263 per cent, the highest among its regional peers.

Shaken, but not deterred, Fernandes is trying to maintain his bullish disposition, arguing that AirAsia’s prospects are improving because of cheaper fuel resulting from lower oil prices, and the reorganisation of state-owned rival Malaysia Airlines, which could see it scrap routes.

“I love proving people wrong and I’m reinvigorated by this [GMT] report,” he said.

“But words are cheap. If we perform as we say we will, people will see tremendous value in AirAsia stock.”