AirAsia Fernandes' China dream come true

AirAsia Group CEO Tony Fernandes.
PHOTO: The Star/Asia News Network

PETALING JAYA - Tan Sri Tony Fernandes has reasons to smile, as for the past 10 years he has been dreaming of setting up a low-cost airline in China, and now, he seems to have gotten his way.

His enthusiasm, however, was not reflected in the share price of AirAsia Bhd, which saw a marginal rise yesterday.

It closed eight sen higher at RM3.56 (S$1.15), a day after AirAsia signed a memorandum of understanding (MoU) with two Chinese parties. Analysts believe the potential is huge.

The deal came six weeks after AirAsia entered into a joint venture (JV) with Vietnam's Gumin Company Ltd and Hai Au Aviation Joint Stock Co to set up a low-cost airline in Vietnam.

Fernandes has been working on the China deal for the past two years. He was supposed to have signed the deal in November last year, but it was cancelled at the eleventh hour. Two days ago, however, he managed to ink it.

"Now, we have earned the right to be called AirAsia (in China)," the group CEO of AirAsia said in a text message to StarBiz.

The agreement is between AirAsia and China Everbright Group, a financial services conglomerate that is a major shareholder in China Aircraft Leasing Group Holdings Ltd, and the Henan Government Working Group.

The plan is to set up AirAsia China to be based in Zhengzhou, the capital of Henan, to ply domestic and international flights. The deal also included plans to set up a maintenance, repair and overhaul centre and a low-cost air terminal there, besides an academy to train pilots, crew and engineers.

It is not known if the venture in China would lease aircraft from China Aircraft Leasing but AirAsia has hundreds of orders for aircraft meant for its regional expansion.

"AirAsia is the first airline to do this in China. It is big, as the latter does not do all this. The fact that it is partnering government-listed companies shows that the government supports it.

"But there will be challenges too, and while AirAsia has to work very hard, it remains to be seen how it will be able to resolve all issues," said Maybank Investment Bank Bhd senior analyst Mohshin Aziz.

AmInvestment Bank Bhd in a research note said: "We believe the MoU for the JV is positive for AirAsia's long-term outlook, with it being the largest foreign low-cost carrier (LCC) operating in China. It was the first foreign LCC to enter China in 2005, and AirAsia and AirAsia X currently fly to 15 destinations in China.

"Moreover, with the venture into China, AirAsia will complete its presence in all the major territories in the Asia-Pacific region, having successfully built its presence in Malaysia, Thailand, Indonesia, the Philippines, India and Japan."

AirAsia has several ventures in Asia and adding China to its fold, according to Fernandes, represents the final piece of the AirAsia puzzle as it closes the loop on all major territories in the Asia-Pacific. AirAsia's connectivity spans across the Asia-Pacific - from China, Japan and South Korea in the north to Australia and New Zealand in the south to India and the Middle East in the west, with ASEAN at the centre.

"AirAsia is building an insurmountable foundation and a network that will be unassailable. We have seen the huge advantages of having an international network with links into a domestic network," Fernandes added.

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