Thursday, March 31, 2016

What would Tune Air do?

In case you do not know, Airasia has just announced calling for a suspension. Suspension could mean big news (such as M&A) or and could sometimes mean a small insignificant news.

What do I think? I don't know. However, this is what I think it would be mostly needed. Privatisation. (Even though a day before today, it announced that the rumor that it is contemplating a deal with China's Everbright Bank is not true.)

Why do I think that it needs to do a privatisation. Any company that is doing major corporate exercise and needs time to do it, it is best to go the privatisation route. Dell, Maxis and even the latest MAS and Tiger Airways went for that.

Airasia is in that mould. I have said before, it needs to expand to compete. The airline industry cannot wait for Airasia to grow at its own pace. It needs to expand fast enough to compete. If Airasia cannot become the largest low costs airline in India, it needs to be second to Indigo - not fourth or fifth. Similarly, Japan, Indonesia or any new country it is planning to expand its base from.

The problem being a public company is that shareholders (most of them) do not understand. They want good dividends, they want strong growth in profits, strong balance sheets, less debt etc. For Nestle, Dutch Lady it is possible.

Unfortunately, Airasia cannot deliver all of the above. Airasia, needs to go leverage, it needs to raise funds and needs to expand further. Indian and Philippines operations need more money. India needs more than 5 planes. To do this, private equity is better than public equity - on paper and many times it is true.

Public just could not understand.

If however, it is to do a rights issue or private placements, I will be disappointed. Why? Just too low based on its current price.

No comments: