KUALA LUMPUR: AirAsia Group Bhd and AirAsia X Bhd’s shares plunged yesterday over reports alleging corruption and bribery involving their executives, while analysts warned that things could get worse for the two airlines.
AirAsia dropped 10.5 per cent or 15 sen lower at RM1.28, with 57.67 million shares traded. Its market capitalisation shrank by RM500 million to RM4.28 billion.
AirAsia X closed 7.7 per cent lower at 12 sen yesterday against Friday’s closing of 13 sen, with 32.98 million shares traded. Its market capitalisation declined by RM41.5 million to RM497.8 million.
Last week, two unnamed executives of AirAsia and AirAsia X were reportedly implicated in bribery allegations against Airbus SE in relation to the airlines’ jet deals.
According to Britain’s Serious Fraud Office (SFO), Airbus had paid a US$50 million sponsorship for a sports team that was jointly owned by the two executives but was legally unrelated to AirAsia and AirAsia X.
SFO said the payments that were the subject to the agreed wrongdoing included US$10 million on Oct 25, 2013; US$10 million (Nov 4, 2013); US$15 million (Dec 16, 2013); and US$15 million (Jan 9, 2015).
Airbus allegedly had also offered an additional US$55 million but no payment was made.
SFO described the duo - AirAsia executive 1 and AirAsia executive 2 – as key decision makers in AirAsia and AirAsia X as well as substantial shareholders of the airlines.
SFO said the indictment was related to AirAsia and AirAsia X order of 180 aircraft from the European aircraft manufacturer between October 2005 and November 2014, allegedly secured by way of improper payments and offer of further improper payment.
The contracts that were the subject of the agreed wrongdoing involved 64 units of A320neo with a purchase agreement on Dec 13, 2012; 36 units of A320ceo (Dec 13, 2012); 25 units of A330-300 (Dec 18, 2013); and 55 units of A330-900neo (Nov 24, 2014), according to SFO.
Malaysian authorities, including the Malaysian Anti-Corrruption Commission (MACC) and Malaysian Aviation Commission (Mavcom), are undertaking their own investigations on the allegations.
Industry sources said the impact on AirAsia group and the duo in particular, could be more severe if the Malaysian anti-graft agency charged them.
The repercussion could force the two executives to relinquish their positions in the low-cost carriers and their subsidiaries.
“If the duo are found guilty and MACC charges them, it would be detrimental to the airlines’ future growth,” a source told the New Straits Times on condition of anonymity.
The source said analysts had downgraded the airlines’ stocks to ‘sell” to avoid uncertainty exposure.
“If the MACC’s probe results are unfavourable to the airlines, their share prices could drop even lower.”
Kenanga Research analyst Raymond Choo Ping Khoon said AirAsia Group was likely to bear the misfortune of a “sell-off” over concerns that the MACC investigation would lead to legal action.
“Not only is it at risk of financial damage but perhaps more importantly, its brand value and hitherto good standing – in particular that of (AirAsia Group founder) Tan Sri Tony Fernandes himself - with the powers that be.
“However, it cannot be ascertained yet when the MACC will complete the investigation. It could all end well eventually but until then, we will continue to value AirAsia at the low end of its historic five-year valuation range,” Choo wrote in a report yesterday.
He said AirAsia could also take legal action and seek compensation from Airbus for the damage done to its reputation arising from the controversy, citing that it should be welcome as a vote of confidence.
“We also expect a tough operating environment to persist over the medium term with maintenance cost remaining high due to accounting treatment for aircrafts under sales and leaseback arrangements, and concerns over coronavirus outbreak which could derail propensity for air travel in the region,” he added.
Public Investment Bank Bhd analyst Nur Farah Syifaa’ Mohamad Fu’ad said there could be possible negative knee jerk response to the allegations.
“Our sector call is cut to underweight, with stock rating on AirAsia correspondingly cut to trading ‘sell’. AirAsia X is kept unchanged at ‘underperform’,” she added.
PublicInvest lowered its target price for AirAsia to RM1.21 per share from RM1.89 previously, while AirAsia X down to six sen from 13 sen previously.
TA Securities analyst Tan Kam Meng believes the probe against the executives would not have any substantial impact on AirAsia group’s financials.
“However, we factor in the impact of coronavirus on the airline industry by reducing AirAsia Group and affiliates’ load factor by 3.0 per cent points for the year ending December 2020.”
Tan reduced AirAsia’s target price to RM1.03 per share from RM2.01 previously and downgraded the stock to “sell”.
Meanwhile, Mavcom said it would assess whether the two AirAsia group executives had breached its regulations.
“(Mavcom) will assess whether there is any contravention of the Malaysian Aviation Commission Act 2015 (Act 771) and the Commission’s Guidelines on Fit and Proper Person,” Mavcom said in a statement yesterday.
“The allegations touch on the jurisdiction of multiple agencies in Malaysia and therefore, the commission will cooperate and work with all relevant authorities on this matter,” it added.