AirAsia Tumbles as CEO under India probe for alleged graft

AirAsia Group Bhd. shares fell to their lowest level in six months after India said it’s investigating Chief Executive Officer Tony Fernandes and other officials for allegedly paying bribes to influence local policy.

India’s Central Bureau of Investigation said Tuesday that the budget airline’s executives bribed Indian officials through middlemen to sway government decisions on aviation, including obtaining a flying permit for the local unit and approvals to operate internationally. Emails and calls to Fernandes elicited no response, while a spokeswoman said he isn’t available for an interview.

AirAsia’s stock fell 7 percent to 3.08 ringgit yesterday, the lowest closing price since Nov. 28. It slid as much as 11 percent earlier in the day in Kuala Lumpur.

The probe poses uncertainties to AirAsia’s expansion plans. Fernandes has identified India as one of the main pillars of his pan-Asian dream as he seeks to capture a share of a market dominated by Gulf-based carriers and Air India. With the India unit, he’s planning more domestic flights, while international operations are on the cards early next year.

The company’s India unit denied any wrongdoing and is cooperating with authorities, Shuva Mandal, the unit’s director, said in an emailed statement. The company began criminal and civil proceedings against a former chief executive officer in 2016 and hopes to bring an “early resolution to all such issues,” Mandal said.

The Southeast Asian airline’s local unit has been previously under investigation in India. Last February, after a probe into its ownership, the Directorate General of Civil Aviation in New Delhi said its flying permit remains valid and the brand licensing pact doesn’t dilute the “substantial ownership and effective control” by Indian nationals.

After more than a decade of deliberation, India in 2016 scrapped a restrictive rule that only granted international licenses to carriers with five years of domestic operations and a minimum of 20 aircraft in their fleet. The new rules allow airlines to fly abroad if they deploy 20 planes or 20 percent of capacity, whichever is higher, on local routes. The easing opened up room for the local affiliates of AirAsia and Singapore Airlines Ltd. to start overseas flights sooner.

“If they don’t get it despite complying with the 5/20 rule, we need to relook at AirAsia India’s business viability,” said Mohshin Aziz, an analyst at Maybank Investment Bank Bhd. in Kuala Lumpur.

AirAsia India, in which conglomerate Tata Sons Ltd. and local directors control a 51 percent stake, has floated a tender to lease as many as 40 Airbus SE A320 jets. The airline has vowed to eliminate its annual losses this year.

Fernandes has established affiliates over the years in Indonesia, Thailand, India, Japan and Vietnam, trying to take advantage of world-beating traffic growth in the region. AirAsia has ordered hundreds of planes worth billions of dollars from Airbus SE to meet its expansion plans and is in the process of selling a plane-
leasing unit to raise more cash.

India, the world’s fastest-growing major aviation market, has been a focus for AirAsia, as an emerging middle class with enough disposable income flies for the first time. Fernandes has talked about a potential initial public offering for the unit, which could boost the value of the parent company by USD200 million, Crucial Perspective, a specialist in Asian transportation equities, said in January. Shruti Srivastava, Anurag Kotoky, Bloomberg