The Philippines Joint Venture
BackDec 16, 2010
|Subject||AIRASIA BERHAD ("AIRASIA" OR "THE COMPANY")
- The Philippines Joint Venture
|Contents||AirAsia Berhad (“AirAsia” or “the Company”) is pleased to announce that the Company through its wholly-owned subsidiary AA International Ltd (“AAIL”) had on 16th December 2010, executed a Shareholders Agreement (“the Agreement”) with Antonio O. Cojuangco Jr., Michael R Romero and Marianne B. Hontiveros, all nationals of the Republic of the Philippines.
The Agreement is formalized for the purpose of forging a business cooperation between the Malaysian and Filipino parties to establish a low cost airline in the Philippines based on the successful AirAsia business model (“the Joint Venture”). The company to be incorporated for the Joint Venture is named AirAsia Inc.
1) The rationale and prospects of the Joint Venture:
The Low Cost Carrier (“LCC”) business model practiced by AirAsia enables the airline to offer affordable fares to passengers. The business model keeps operating costs low by encouraging travelers to make Internet bookings where its lowest fares are offered. Minimal operating costs further enhance the affordability of the LCC model.
The LCC concept has been very well received by the people of ASEAN as it brings affordable travel to various parts of the region which were previously either only served by legacy airlines or not served at all.
The rationale for the Joint Venture is therefore to bring low cost airline travel to the Philippines to make it affordable to the average Philippines national to travel domestically and regionally. The low cost airline will also offer greater access to affordable travel to the Philippines which will help the economic growth of the country as evidenced in other regions where AirAsia is currently serving.
2) Feasibility Study
AirAsia has conducted a feasibility study prior to entering into the Joint Venture and based on the study AirAsia is confident that the Joint Venture will strengthen AirAsia’s distribution capacity across its existing network.
The Joint Venture will leverage on AirAsia’s strength to forge into markets in China (with Macau and Hong Kong), Taiwan, Korea, Japan as well as Singapore. These sectors will enhance AirAsia’s ASEAN regional expansion by providing AirAsia with additional routes and destinations and linking the destinations with AirAsia’s already comprehensive route network.
The feasibility study forecasts that the Joint Venture will be operationally feasible and financially viable, and is expected to contribute positively to AirAsia’s financials both directly and indirectly in the future.
3) Salient terms of the Agreement:
a) AirAsia will hold a 40% equity in AirAsia Inc. through AAIL. As Philippines’ company laws require incorporators of a company to hold at least one share, Dato’ Sri Dr. Anthony Francis Fernandes and Dato’ Kamarudin Bin Meranun being two of the five incorporators of AirAsia Inc. will each hold one single share upon trust for AAIL (“Shares upon Trust”).
b) AirAsia grants the rights for the use of the AirAsia brand to AirAsia Inc.
c) AirAsia will provide technical, operational and commercial support on an arms length basis to AirAsia Inc to ensure commercial, operational, branding and service level uniformity throughout AirAsia’s operations.
d) AirAsia Inc shall apply for the Certificate of Public Convenience (“CPCN”) from the Civil Aviation Board (“CAB”) for the permit to operate an airline. AirAsia Inc shall also apply for the Air Operator’s Certificate (“AOC”) from the Civil Aviation Authority of the Philippines to operate aircraft in its fleet.
The shareholding structure in AirAsia Inc shall be AAIL with 40% (inclusive of the Shares upon Trust) and 20% each to be held by Antonio O. Cojuangco Jr., Michael R Romero and Marianne B. Hontiveros (collectively referred to as “the Shareholders”).
The Agreement contains terms which are common to agreements between shareholders such as pre-emption rights, reserved matters, board composition, deadlock events, termination, etc.
4) Capital Injection
The Joint Venture will require USD8 million as paid up capital of AirAsia Inc. to be paid by the Shareholders in their respective shareholding ratio. AirAsia will raise internal funding for its portion of the equity.
5) Financial Impact
It is forecast that the Joint Venture will not make any material contribution in the short term however will contribute positively in the long-term.
6) Risk Factors
The parties have considered risk factors relating to the Joint Venture as follows:
a) The CPCN awarded may be subject to certain conditions relating to traffic rights, commercial needs or conditions which arise from objections of interested parties. Any variation and/or amendment to those conditions will require further application and approval from the CAB to put into effect. This may be a commercial setback to the growth of the airline;
b) Price competition from existing carriers which have been known to wage price war on new entrants to the commercial aviation market;
c) Socio-economic factors: Despite the relative large population of 93 million in Philippines, the general population still relies on surface transport due to their income level. A low cost carrier may not necessarily generate any appreciable growth of new travelers; and
d) Natural disasters: Geographically the Philippines is prone to natural disasters in particularly typhoons as well as volcanic activities and flooding which may adversely affect air travel.
7) Commencement of Operations
Subject to obtaining the relevant regulatory approvals, the Joint Venture is expected to commence operations in September 2011. The Shareholders have undertaken various steps to ensure that all operational, engineering, commercial and administrative aspects of the Joint Venture are in place and ready for the launch.
The Joint Venture is not subject to the approval of the Company’s shareholders. It is however subject to the relevant government authorities in the Philippines for the CPCN and the AOC.
9) Directors and Substantial Shareholders’ Interests
Other than the Shares upon Trust, none of the directors and/or major shareholders of the Company and persons connected to them, insofar as the existing directors and major shareholders are able to ascertain and are aware, has any interest, direct or indirect in the above-mentioned Joint Venture.
10. Document available for inspection
The Agreement is available for inspection at the registered office of the Company at 25-5, Block H, Jalan PJU 1/37, Dataran Prima, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia during normal business days from Mondays to Fridays (except public holidays) for a period of 3 months from the date of this announcement.
This announcement is dated 16th December 2010.