Virgin’s Branson forms Alliance with AirAsia

KUALA LUMPUR ~ Asian low-cost airline pioneer Tony Fernandes looks set to score a major coup, with British businessman Richard Branson coming on board to help get his struggling, high-risk, long-haul venture off the ground, analysts said this week.

Branson of Virgin Group is to take a 20-percent stake in Malaysia’s AirAsia long-haul budget carrier, a report said.

AirAsia chief executive Tony Fernandes declined to comment on the report even as the company said it would be making a major announcement on Friday.

“I am not saying anything,” Fernandes said.

In a separate statement, however, the company said long-haul operator “AirAsia X will be making a major announcement (Friday) involving a strategic global investor. We promise you it will be a memorable one.”

The Star daily earlier cited an industry source as saying that “selling of the 20-percent stake is the first round of funding required by the airline to kick-start operations and partly pay for the 15 aircraft that have been ordered.”

Branson, via the Virgin Group, would take the stake in Fly Asian Xpress Sdn Bhd (FAX), the long-haul operator. With the stake sale, FAX should be capitalized at US$30 million, the report said.

Branson is expected to attend the signing ceremony.

Shukor Yusof, aviation analyst with Standard and Poor’s in Singapore, described Branson’s entry as a “coup for Fernandes.”

“If the deal happens, it will provide vital funds for the long-haul carrier to take off,” he said.

Shukor said the task now for Fernandes was to put the plans in place and start flying after a three-month delay.

“The deal is mutually beneficial to each other and it lends prestige to each other,” Pong Teng Siew, MIMB’s head of research said.

The alliance will benefit both carriers as they will be able to draw on their respective strengths.

“Each will be represented where the other is strong,” Pong said, referring to Virgin’s presence in Europe and AirAsia’s stronghold in Asia.

Peter Harbison, executive director with the Sydney-based Centre for Asia Pacific Aviation, said the deal would have a major impact on the industry.

“Branson’s involvement is good for Fernandes. It gives credibility to AirAsia’s long-haul carrier. It gives passengers a lot of connectivity to European routes,” he said.

Harbison discounted critics who say the short-haul business plan cannot simply be scaled up to long-haul.

“Fernandes has the skills to make the plan succeed. The carrier has good strategies, good management and cheap prices,” he said.

Fernandes, who holds 50 percent of FAX, and his deputy Kamarudin Meranum with 30 percent, are expected to sell some of their shares to Branson, the founder of Virgin Group.

FAX has 15 widebody A330-300 airliners on order from Airbus, the European manufacturer.

It is scheduled to begin long-haul flights to China and Australia on September 8, using three leased planes, from the low-cost carrier terminal at Kuala Lumpur International Airport (KLIA).

At its launch in January, the carrier had promised budget flights to Britain beginning in July.

Fernandes launched AirAsia as a pioneering regional budget carrier in December, 2001, with just two aircraft. It now serves domestic and international routes throughout the region.

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