Vietnam Joint Venture

BackFeb 10, 2010
Type Announcement
Subject AirAsia Berhad
Vietnam Joint Venture
Contents AirAsia Berhad (“AirAsia” or “the Company”) is pleased to announce that the Company through its fully owned subsidiary AA International Ltd (“AAIL”) has on 9th February 2010, executed:-

(i) a Share Purchase Agreement for the Company to purchase 30% of the issued and paid capital of Vietjet Aviation Joint Stock Company (Business Registration Certificate No: 0103018458, a company incorporated in Hanoi, Vietnam having its head office at 125 Truc Bach, Ba Dinh District, Hanoi) (“Joint Venture Airline”); and

(ii) a Shareholders Agreement with SOVICO Holdings (Business Registration Certificate No: 0103028039, a company incorporated in Hanoi, Vietnam having its head office at 26 Phan Boi Chau., Hoan Kiem District, Hanoi) and Mr Nguyen Thanh Hung, a Vietnamese national.

Both Agreements are formalized for the purpose of establishing a joint venture airline in the Socialist Republic of Vietnam (collectively the transactions are referred to as “the Venture”).

The purpose of the Venture is to forge a business cooperation between the Malaysian and Vietnamese parties to establish of a low cost airline in Vietnam based on the successful AirAsia business model.

The main Vietnamese party to the Venture is SOVICO Holdings which is an established Vietnamese corporation with interests in banking and finance, real estate, plantation, power plants, various industries and education. Mr Nguyen Thanh Hung is currently the Chairman of SOVICO Holdings’ Board of Directors.

The Joint Venture Airline is a subsidiary of SOVICO Holdings which currently directly and indirectly controls 100% of the Joint Venture Airline.

The Joint Venture Airline which has an issued and paid up capital of VND600 Billion was granted a Flight Permit by the Vietnamese Civil Aviation Authority in 2007. The Joint Venture Airline has yet to commence its commercial operations and the joint venture with AirAsia is intended to enable it to commence operations with an established airline in the region.

1) The rationale and prospects of the 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 travellers 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 peoples of ASEAN as it has brought 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 Venture is therefore to bring low cost airline travel to Vietnam to make it affordable and less economically burdensome to the average Vietnamese national to travel domestically and regionally. Greater access to affordable travel will also help the economic growth of the country as is evident in other regions AirAsia is currently serving.

2) Feasibility Study

AirAsia has conducted a feasibility study prior to entering into the Venture and based on the study AirAsia is confident that the Venture will strengthen AirAsia’s distribution capacity across its existing network and will enhance AirAsia’s ASEAN regional expansion by providing AirAsia with additional routes and destinations. Vietnam will be a gateway which connects the travel markets of ASEAN with mainland China and potentially the regions of South Asia, North and East Asia including possibly Japan, Korea and Taiwan.

3) Salient terms of the Agreements:

a) that AAIL will purchase a 30% equity in the Joint Venture Airline from Madam Nguyen Thi Phuong Thao at a price of VND180 billion.
b) that AirAsia grants the rights for the use of the AirAsia brand to the Joint Venture Airline.
c) that AirAsia will provide technical, operational and commercial support on an arms length basis to the Joint Venture Airline to ensure commercial, operational, branding and service level uniformity throughout AirAsia’s operations.
d) that the completion of the Share Sale and Purchase Agreement and the Shareholders Agreement is subject to among others; the regulatory approvals on the transfer of shares to AAIL, change of the Flight Permit to include AAIL as a shareholder, the change of the Joint Venture Airline trade name to Vietjet AirAsia and the change of the logo of the Joint Venture Airline.

Following the completion of the share transfer, the shareholding structure in the Joint Venture Airline shall be AAIL with 30%, SOVICO Holdings with 51% and Mr Nguyen Thanh Hung with 19%.

4) Capital Injection
The Joint Venture Airline does not require fresh capital injection. The requisite capital injection for new airline application in Vietnam is VND600 billion (equivalent to RM112 million as at February 2010) which is fully paid up. There are currently no proposals for fresh capital injections however if there is any, such contributions will be in accordance with each parties shareholding ratio.

5) Financial Impact
It is forecast that the 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 related to the airline industry such as

a) the recent unprecedented economic conditions which may significantly reduce demand for air travel in the short term; and
b) being a highly regulated industry the Joint Venture Airline may not obtain required licenses or approval*.

*On 9th February 2010, the Venture has received the Vietnamese Government’s approval for the transfer of shares and the change to the list of shareholders to include AAIL (please see paragraph 8 below).

7) Commencement of Operations
Subject to regulatory approvals the Venture is expected to commence operations between April to June of 2010. The parties have undertaken various steps to ensure that all operational, engineering, commercial and administrative aspects of the Venture are in place and ready for the launch.

8) Approvals
The Venture is not subject to the approval of the Company’s shareholders. It is however subject to the relevant government authorities in Vietnam for the transfer of shares, the change of name to Vietjet AirAsia and the change of logo.

The transfer of shares and change of shareholding to include AAIL have received the approval of the Vietnamese Government on February 9th 2010.

9) Directors and Substantial Shareholders’ Interests
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 Venture.

10. Documents available for inspection

The Agreements are 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 10th February 2010.



Announcement Info

Stock Name AIRASIA    
Date Announced 10 Feb 2010  
Category General Announcement
Reference No CM-100210-64967