AirAsia Cooking The Books? (Reuters Article)

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When I was watching Bloomberg News this morning, they had a segment on AirAsia and its problems with a research report that was published on June 10th but won’t become “public” before June 24th.

AirAsia Cooking The Books

The report prepared by GMT research basically alleges that the airline has used creative accounting with its dealings with the various AirAsia affiliates to boost its profitability.

You can access the Reuters article here of which below is an excerpt and the Bloomberg piece here.

The comments in Fernandes’ letter, sent on Monday and reviewed by Reuters, came days after Hong Kong-based firm GMT Research issued a report questioning AirAsia’s accounting practices. In its report, GMT said AirAsia used transactions with associate companies to boost earnings, startling investors and leading the airline’s shares to fall to a five-year intra-day low on June 12.

Fernandes’ plans also come as some analysts question a strategy they say hinges on a raft of associate airlines, some of which are losing money amid stiff competition and now overdue on loan repayments to AirAsia. AirAsia has become the world’s second-worst performing large and mid-sized airline stock this year after Virgin America, with a decline of 34 percent, Reuters data shows.

“AirAsia’s regional airline associate ventures are turning out to be more problematic than we initially anticipated,” HSBC analysts said last week in a report titled “United We Fall.”

“With the exception of Thai AirAsia, all the other airline ventures are loss-making and are being increasingly funded by the parent. Consequently, loans to associates doubled in 2014 (more than 50 percent overdue) and equaled half of AirAsia’s equity value, the highest level in history.”

Conclusion

AirAsia (the parent company) should have written down the present value of its overdue loans from the affiliates to better reflect the state of the airline (and it may have well done so).

The AirAsia group has extended all over Asia and has numerous affiliates including Indonesia AirAsia, Thai AirAsia, Thai AirAsia X etc.

The airline has been very successful offering lower fares to consumers, but is increasingly facing competition from airlines like the Lion Air group that tries to mimic AirAsia by opening affiliates such as the Thai Lion Air.

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