AirAsia Tumbles as CEO Under India Probe for Alleged Graft
The probe is a setback to AirAsia’s expansion.
(Bloomberg) -- AirAsia Group Bhd. shares fell to their lowest level in six months after India said it’s investigating Chief Executive Officer Tony Fernandes and other officials for allegedly paying bribes to influence local policy.
India’s Central Bureau of Investigation said Tuesday the budget airline’s executives bribed Indian officials through middlemen to sway government decisions on aviation, including obtaining a flying permit for the local unit and approvals to operate internationally. While emails and calls to Fernandes elicited no response, the company denied any wrongdoing in a statement Wednesday.
AirAsia’s stock fell 7 percent to 3.08 ringgit on Wednesday, the lowest closing price since Nov. 28. It slid as much as 11 percent earlier in the day in Kuala Lumpur.
The probe poses uncertainties to AirAsia’s expansion plans. Fernandes has identified India as one of the main pillars of his pan-Asian dream as he seeks to capture a share of a market dominated by Gulf-based carriers and Air India. With the India unit, he’s planning more domestic flights, while international operations are on the cards early next year.
“AirAsia vigorously denies all accusations and contentions,” the company said in a stock exchange filing. The carrier will defend itself, it said. R. Venkataramanan, a Tata Group veteran and a non-executive director of AirAsia India who was also named in the police report, said in a separate statement he was “wrongly named as an accused.”
On Tuesday, AirAsia’s India unit also denied any wrongdoing and and said it was cooperating with authorities. The company began criminal and civil proceedings against a former chief executive officer in 2016 and hopes to bring an “early resolution to all such issues,” Shuva Mandal, the unit’s director, said in an emailed statement.
The Southeast Asian airline’s local unit has been previously under investigation in India. Last February, after a probe into its ownership, the Directorate General of Civil Aviation in New Delhi said its flying permit remains valid and the brand licensing pact doesn’t dilute the “substantial ownership and effective control” by Indian nationals.
After more than a decade of deliberation, India in 2016 scrapped a restrictive rule that only granted international licenses to carriers with five years of domestic operations and a minimum of 20 aircraft in their fleet. The new rules allow airlines to fly abroad if they deploy 20 planes or 20 percent of capacity, whichever is higher, on local routes. The easing opened up room for the local affiliates of AirAsia and Singapore Airlines Ltd. to start overseas flights sooner.
“If they don’t get it despite complying with the 5/20 rule, we need to relook at AirAsia India’s business viability,” said Mohshin Aziz, an analyst at Maybank Investment Bank Bhd. in Kuala Lumpur.
AirAsia India, in which conglomerate Tata Sons Ltd. and local directors control a 51 percent stake, has floated a tender to lease as many as 40 Airbus SE A320 jets. The airline has vowed to eliminate its annual losses this year.
Fernandes has established affiliates over the years in Indonesia, Thailand, India, Japan and Vietnam, trying to take advantage of world-beating traffic growth in the region. AirAsia has ordered hundreds of planes worth billions of dollars from Airbus SE to meet its expansion plans and is in the process of selling a plane-leasing unit to raise more cash.
India, the world’s fastest-growing major aviation market, has been a focus for AirAsia, as an emerging middle class with enough disposable income flies for the first time. Fernandes has talked about a potential initial public offering for the unit, which could boost the value of the parent company by $200 million, Crucial Perspective, a specialist in Asian transportation equities, said in January.
--With assistance from Kyunghee Park.
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