Sunday, February 2, 2020

Airasia: The bigger issue is from China, not Europe!

To me the bigger issue for Airasia is AAX and the coronavirus situation in China. The Airbus situation is something which is not totally unexpected. Let me put through my thoughts on this.

Firstly, China is a big market for Airasia and other airlines in this region. We do not know how worse the situation can be as air travel or any other mode of travel can be affected for the short term. Many countries have barred Chinese travellers be it from Hebei province (Wuhan especially) or the entire China. Economy will be affected because of this, not just China but other countries that trade with China.

Airasia has mentioned, SARS was bad for the company and today, it is having much more flights in and out of China. To me, the one which is affected even more is AAX - already it is not in good financial situation but because AAX's flights are the ones with more than 4 hours flight hours, they fly to more Chinese cities than Airasia. For Airasia, if I am not mistaken at the most, the flights that uses the A320s are to Hong Kong, Shenzhen, Macau and perhaps Kunming. AAX's routes fly right up to Tianjin (close to Beijing).

What is beneficial to Airasia now is the price of fuel has dropped significantly since the Wuhan virus outbreak was deemed to be worse than initially thought.

What about the penalty on Airbus?

Well, I am not surprise. This is not that I am supporting the way it was done. I am NOT. The issue seems to be the sponsorship for Caterham (which was a big mistake by the founders).


The article by Focus Malaysia made it sounds like the arranger pocketed the money from the purchase deal. I believe it is not, the deal probably was a sponsorship deal towards Caterham. I have searched for a connection between Airbus and QPR, but could not find any.

In any case, we should be mindful of how the EU works. This is opportune time to really penalise a huge organization such as Airbus given the 737MAX issues that Boeing face. As the aircraft business is a duopoly, what Boeing faces is benefiting Airbus - hence probably the EU and now UK (which is officially no longer part of EU) takes this opportunity to put a huge fine on Airbus. How come they did not penalise Airbus earlier and does this kind of case need 5 years to be taken action upon?

Airbus is not just a plane manufacturer but also a designer and producer of military equipment, planes to many countries (especially EU countries). Do we really believe that EU is serious on penalising a company that it supports and relies on. Airbus is a company created through the European Union's initiative. They probably subsidize the company many times the penalty. This is politics. During good times, fine can be part of the tax initiatives. During bad times, they will provide subsidies.

At the moment, Airbus is in a leading position, hence it will not give that much incentives to companies to purchase its planes as Boeing now is "injured". As a perspective, do we now see Airasia doing deals (in the last 2 years) with Airbus? None besides the upgrades from A320 to A321. Tony is a dealmaker - and sometimes he overdid it.

In my mind, Airasia is a company that negotiates the purchase of planes to the benefits of the company. When the deal is not so sweet, they backed off. Remember that the founders put in another RM1 billion into the company by buying more shares. Their wealth is tied down to Airasia more than the USD50 million behind the scene deal.

MACC is pinning down on the deal, which is not surprising. However, as I believe with Europe trying to be seen as leading on curtailing corruption, their version of what is corrupt may be different to what is in Malaysia for example. To Airasia, as long as the sponsorship deal is above board and given the approval by its Board, it should be acceptable. That is not in EU's playbook. But remember, in bad times, they support their companies all the same.

I believe this is the same issue among many faced by our palm oil companies and seafood producers.

To the authorities here, while Europe or US give us the direction on what is corrupt and what is not, not everything that they do is for our benefits. The size and strength of EU put them on the advantage to define certain issues. But if we play by their book, we are not moving much forward.

This is what is faced by China on the trade war and we should do the same with our companies. I do Not encourage unscrupulous deals by our companies but there are much worse ones that I have seen.

2 comments:

reyes430 said...

Thanks Felicity for the sensible write up, do you have any idea how exposed is AIRASIA on China market?

While i at the same time do not encourage for bribe/taking bribe, but deep down i knew many businessman in Malaysia are practicing this "culture". Takes construction or property sector as example, this sector could be the most corrupted sector ever, just that most of them are not being caught. My opinion on TONY/KAMARUDIN is remain the same even if this case is real, both of them are capable and truly a real corporate leader. My biggest concern still lied on Wuhan coronavirus issue, the potential threat of it to airline business, china economy and the potential cascading effect towards global market. We all rely so much on China.


felicity said...

I do not have exact number, but could be pretty bad. Travel is much reduced not just to and fro china, but basically regionally