Disclaimer: This post is highly opinionated and by no means construe to any buy or sell decision on any securities or shares mentioned in this article. MyKayaPlus.com bears no responsibility for the decision made by readers after reading this article nor the accurateness of the information. All info derived is based on our best knowledge at the time the article was constructed.
I seldom start a post with a warning. This might be the first of it. And to be very honest I am digesting the news and information along the way as I continuously update this very post. It means by the very moment you are reading this sentence, you might be sharing the same understanding as me (which is being utterly clueless and fearful). Hopefully, when I reach to the end of this post, I would have come out with my opinion, and that the whole scenario is painted in an easier to understand piece for you to make your own decisions.
What happened to AirAsia Group Berhad? In a simple sentence: A Bribery Allegation Against its 2 Key Executives, Tan Sri Dr Anthony Francis Fernandes and Datuk Kamarudin bin Meranun
Now I know that most of us, who are based in Asia, would look at AirAsia Group Bhd as the main focal point in the current debacle. But the truth is, the main alleged antagonist in this matter is actually Airbus SE. The Airbus group is one of the world’s biggest Aerospace and defence company. Airbus group manufactures commercial passenger planes and sells them to airline companies like AirAsia group.
The UK court papers are roughly 32 pages long, but it covers the whole issue at a wider spectrum compared to The Edge article which laser focuses AirAsia in its crosshair. So let’s take a look at the key points highlighted by the court papers.
1. The Alleged Bribery Cases of Airbus SE is An International Scandal
AirAsia Group was just the party based in Malaysia that Airbus SE allegedly bribed. Other countries mentioned were Sri Lanka, Taiwan, Indonesia, Ghana, China, Colombia, Nepal, South Korea, the United Arab Emirates, Saudi Arabia (Arabsat), Taiwan and Russia.
2. Multiple Bodies Around The World Are Involved In This Investigation
This whole operation is led by the Serious Fraud Office (SFO), a non-ministerial government department of the Government of the United Kingdom that investigates and prosecutes serious or complex fraud and corruption in England, Wales and Northern Ireland. Co-operating with the SFO is the French Parquet National Financier (PNF) who are part of the joint investigation team (the JIT) and is parallel to an investigation conducted by the United States Department of Justice (DOJ) and by the United States Department of State (DOS).
It is a HUGE scandal judging by the number of regulating bodies are involved on an international scale.
3. The Alleged Briberies Took Place to Boost Sales of Airbus SE
According to SFO, in order for Airbus to increase sales, individuals who performed services for and on behalf of Airbus offered, promised or gave financial advantages to others intending to obtain or retain business, or an advantage in the conduct of business, for Airbus SE. It is alleged that the financial advantages were intended to induce those others to improperly perform a relevant function or activity or were intended to reward such improper performance and that Airbus did not prevent, or have in place at the material times adequate procedures designed to prevent those persons associated with Airbus from carrying out such conduct.
The modus operandi of the alleged bribery can be traced back to the Airbus business model. To expand its international sales footprint, Business Partners (BPs) or sometimes known as third party intermediaries or agents, are used to win sales contracts. When Airbus made a successful sale of aircraft it would typically pay BPs a commission based on a percentage value of the sale, or a fixed amount per aircraft sold.
A special tasked committee and entity was tasked to ensure that the BPs assigned are neutral and independent of Airbus’s customers. It was later found out that there were serious weaknesses within Airbus’ compliance and oversight structure.
4. Airbus SE Failed to Prevent Personals Associated to Airbus SE from Bribing Directors/Employees of AirAsia Group and Other Parties Mentioned
Lucky number 1. The first count stated has already mentioned the AirAsia group of companies in the first indictment.
Perhaps worth mentioning also that it is also the biggest amount stated in the Indictment. USD$ 50million. But what is also worth mentioning is that the count involving AirAsia Group versus other counts is one CRUCIAL word missing.
There is no mentioning of a suspicious Business Partner (BP) in the AirAsia count. For other counts involving Sri Lanka Airlines (SLA), TransAsia Airways (TNA), PT Garuda Indonesia (Persero) Tbk (Garuda) and the Government of Ghana, there were clear allegations of a non-neutral Business Partner that has acted suspiciously in favour of their personal gains with Airbus SE as the beneficiary.
The AirAsia group allegations centres around the fact that it remains one of Airbus SE largest customer, and could significantly give financial material impacts to Airbus SE based on the potential sales tying to its sponsorship payment to an F1 racing team.
5. The Epicenter of The Airbus & AirAsia Group Allegation
Between October 2005 and November 2014, AirAsia and AirAsia X ordered 406 aircraft from Airbus, including 180 aircraft secured during the indictment period by way of improper payment, and the offer of a further improper payment. The improper payment consisted of $50 million (and Airbus employees also offered but did not pay an additional $55 Million) paid to directors and/or employees of AirAsia and AirAsia X airlines as sponsorship for a sports team, allegedly for the Caterham F1 racing team which went defunct in 2014. The sports team was jointly owned by Tan Sri Tony Fernandes and Datuk Kamarudin Meranun but were legally unrelated to AirAsia and AirAsia X.
How AirAsia Group’s Executives and the AirAsia Group got dragged into the scandal was in regarding the sponsorship payment (which Airbus paid out using the controversial BP sales incentive payment method). In Airbus’ rationale, sponsoring an F1 team indirectly increases the group’s exposure and potentially their market footprint by sponsoring the F1 team owned by 2 individuals who coincidentally owned Malaysia’s largest budget airline company.
To add salt on the wounds, an email from an unnamed Airbus employee in the court documents indicated that the purchase of their planes hinged on the sponsorship payment.
“We have had some good meeting with [AirAsia Executive 1] this weekend in Singapore. AirAsia X is willing to take 25 A330-300s starting in 2015 … But as you can imagine. [AirAsia Executive 1] is insisting on the early payment of his sponsorship. We owe [US$10 million] in both [January] 2014 and 2015. He wants it paid now … The incremental A330s will generate a follow-on sponsorship so we need SMO [Airbus strategy and marketing operation] involvement …” said the email.
It was eventually decided that AirAsia X would place an order for 25 A330-300 planes with deliveries starting early 2015.
“As part of the deal, EADS will advance the [US$10 million] of sponsorship due to be paid in January 2014 and the [US$10 million] due to be paid in January 2015, both to be paid on A330 PA signature and PDP payment. These two payments were due as part of the A320 deal,” said an Airbus employee in an email.
It was made pretty clear that Tony Fernandes wanted the sponsorship payment to Caterham F1, co-owned by himself and Kamarudin Meranun under Tune Group Sdn Bhd to be settled before allowing Airbus SE to announce the purchase of 25 planes from AirAsia X Group.
6. The Argument & Rebuttal From Tony Fernandes & Kamarudin Meranun
Fresh from the oven during the construction of this article, both Tony Fernandes & Kamarudin Meranun have responded via an official statement.
Both claiming that they were never approached by the UK SFO during the 4-year investigation that only came into limelight as of end January 2020.
The claim is that both were unaware that Caterham F1 was being sponsored improperly by Airbus, during the 2013-2014 F1 season where Caterham F1 was going around the globe for the F1 Grand Prix. Caterham F1 featured AirAsia, AirAsia X, GE and Airbus on their cars as an advertisement for the sponsors’ efforts.
7. The Facts and The Verdict
From what I can conclude after reading through all the information made available at the time of writing of this article, I think AirAsia Group is the unlucky target of the entire erupted scandal.
Is the business impacted? Nope. Maybe yes. If we consider the current Wuhan Coronavirus effects on air travel.
Is AirAsia Group Bhd the culprit? Nope. But they could well be the victim judging at the huge selldown of their company shares.
Are the AirAsia Group Executives potentially guilty? Yes, potentially. If the email of the Airbus employee holds any substance and rued guilty by the court.
Will it cause any material impact on AirAsia Group’s financials? Nope. Based on information available as of the time of writing.
Is Airbus guilty? From a neutral point of view relying on available resources, I’d say a solid yes. But how the court case would eventually pen out could spell different outcomes.
Would AirAsia go for Boeing planes if Airbus delayed their Caterham F1 sponsorship payments? Highly unlikely. Just so you know a 100% of AirAsia’s fleet are proudly Airbus planes. What I deduce is that Airbus wanted to formally announce the purchase of planes by AirAsia Group, which judging by the order size, have a significant material impact to Airbus’ financials at that period of time.
Worst case scenario, if both AirAsia Group Executives are found guilty and are forced to relinquish their executive role in the company, does it spell the end to AirAsia Group? Even before both are found guilty, they have swiftly given up their executive role, allowing MR THARUMALINGAM A/L KANAGALINGAM (Bo Lingam), the current deputy Group CEO to acting Group CEO. Mr Lingam joined AirAsia Bhd in the year 2001, as a Ground Operations Manager, and has been groomed to his current position as Deputy Group CEO, even though his highest academic achievement was his Sijil Pelajaran Malaysia (SPM), which is equivalent to finishing just high school exam.
AirAsia Group has always had a culture of nurturing and investing in its human capital. Though it seems premature to judge, personally I think AirAsia Group is in good hands when the day both key Executives decides to call it a day.
To round everything up, I believe that the recent selldown of AirAsia Group Bhd is an over-reaction of the market without knowing the real situation or the worst-case scenario that could happen. The only lawsuit AirAsia Group Bhd should worry about is the lawsuit with Malaysia Airports Holdings Berhad (MAHB).
And I am glad to have a personal opinion and personal conclusion of the entire matter. Of course, my views may change over time in the event more info becomes available to the public, but the gist is to be willing to sieve through all available information and then, potentially taking a well-educated, calculated and risk-mediated move, rather than succumb to the noises of potentially misleading sources of news and rumours, which is a similar scenario we are facing regarding the Wuhan Coronavirus pandemic.
What do you think of the overall situation now that you have read through the summarised and condensed information plus the argument presented? Let us know in the comments section below.
Disclaimer: I own shares of AirAsia Group Bhd and my point of view could very well be biased. You are most welcome to read through the unbiased allegations court papers and articles link shared throughout the whole article. We definitely welcome constructive arguments! We also welcome feedback if any information and facts contained in this article vary from the actual sources, in this case referring to the UK Court Papers & The Edge article.
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