Tuesday, 12 March 2013

Philippines’ AirAsia buys into Asiawide Airways

AirAsia group CEO Tan Sri Tony Fernandes and Yao embrace after the signing of the agreement in Manila yesterday. – AFP

PETALING JAYA: Philippines' AirAsia Inc (PAA) has forged a share-swap deal with Filipino businessman Alfredo Yao, a major shareholder of Zest Airways Inc and Asiawide Airways Inc, to tap each other's domestic and international network strength.

In the strategic alliance agreement, PAA intends to invest in the Zest Air Group by acquiring a 49% stake in Zest Airways and 100% of Asiawide Airways, and, in turn, Yao will subscribe to shares in PAA. The deal is still subject to various regulatory approvals. To further strengthen this partnership, the shareholders of PAA will infuse funds to augment working capital.

PAA CEO Marianne Hontiveros said the strategic alliance between the two local carriers had brought pride and joy to PAA.

“I am especially delighted to have Yao as a partner, as he shares a common vision to provide passengers with the best value fare possible which enables them to fly to various destinations.”

“This proposed investment in the Zest Group will complement the strategies for the future growth of PAA, which currently operates out of Clark,” she said in a statement filed with the local exchange yesterday.

Hontiveros added that this would allow both airlines to leverage on their respective strengths, which in the case of Zest Air, includes its operations out of the Ninoy Aquino International Airport, which constitutes a majority of the air traffic in the Philippines, and a strong domestic network which feeds into its current international routes.
PAA CEO Marianne Hontiveros and Yao at the signing in Manila.

The statement further explained that the investment of PAA in Zest Air also aligned with AirAsia Group's business strategy.

The AirAsia Group consists of existing operations in Malaysia, Thailand, Indonesia, Japan, the Philippines and soon India, altogether making it the largest Asian low-cost carrier, with a combined fleet of 120 aircraft, plus over 350 more on order, and operating over 158 routes spread across 18 countries, of which 56 are unique.

AirAsia sees enormous growth potential in the Philippines, especially with a population of over 100 million people across an archipelago of just over 7,000 islands, a landscape conducive for air transportation.

Yao said the strategic alliance provided a great opportunity to realise both carriers' common vision to widen the choice of low-cost travel within the Philippines and the region.

“The goal in Zest Air is driven by my passion to capitalise on the tourism potential and, hence, our investment to quickly increase our fleet and expand Zest's market share,” he said.

PAA chairman Antonio “Tonyboy” Cojuangco, meanwhile, was truly excited about the alliance, as it would take both companies to greater heights.

“The Philippines aviation market has tremendous upside potential. Bringing these two carriers together would definitely realise this potential,” said Cojuangco.

AirAsia group CEO Tan Sri Tony Fernandes, when contacted, told StarBiz that he was very happy with the Zest Air deal. “It gives us the scale,” he said.

An aviation analyst told StarBiz that this Philippines deal should work well for PAA to turn around to profitability, as it would secure some slots from the airport in Manila city as Clark is about two hours from the city.

“With this deal, the PAA should break even by next year,” he said.

Besides the Philippines, RHB Research which has placed a “buy” call on the AirAsia counter in its sector report said AirAsia had received approval from India's Foreign Investment Promotion Board (FIPB) on its venture into India.

“This will see AirAsia holding a 49% stake as a foreign investor, with its local Indian partner Tata Sons having a 30% stake with the remaining 21% to be owned by Arun Bhatia of Telestra Tradeplace,” said the report.

The initial investment is about US$14.5mil (RM45.12mil), which is slightly more than the initial paid-up capital investment that AirAsia had put in for its earlier ventures in Japan.

Overall, RHB Research said this year would see new challenges, with Malindo's entry set to take a hit on airline yields.

“With Malindo set to commence operations on March 22, we see this could ultimately hurt both AirAsia and Malaysia Airlines (MAS), for which routes to both Kota Kinabalu and Kuching account for 15% and 6% of their available seat km respectively.

“As Malindo will be competing in the local aviation landscape by offering full services at low-cost pricing, this reminds us of Firefly's debut, which turned out to be loss-making despite churning high loads.

“With Malindo operating at a high cost base, its low-fare offering is unlikely to be sustainable over the longer term,” said the report.

AirAsia remained unchanged at RM2.82 at the close yesterday.


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