The fight was about perception after a report by GMT Research cast some serious doubts on the accounts and financial practices of the low-cost airline.

Its shares were hammered down to a mere 78 sen as at August 26 last year, as confidence among investors was near rock bottom. Its units in Indonesia, the Philippines and India were bleeding profusely.

Confidence and AirAsia’s stock price took a hit, as the GMT report essentially cast doubt on AirAsia for using transactions with associate companies to boost earnings. AirAsia group’s flamboyant owner, Tony Fernandes, and his business partner Datuk Kamarudin Meranun were scrambling to give out bits of information to investors over the state of affairs at AirAsia, as their focus then was more on the non-airline-related business, leaving the airline on remote control.

Nine months on, there has been a stark difference.

Last Friday, the decision by Fernandes and Kamarudin to pump 1 billion ringgit (US$255 million) into the company has given rise to a new level of excitement. What that created were also questions over what was really behind the surprising move.

This will be done via a placement exercise which will raise their stake from 18.9 per cent now to 32.4 per cent. A total of 559 million new shares will be placed out at 1.84 ringgit per share to Tune Live Sdn Bhd, a company equally shared by them.

AirAsia shares have risen by some 3.27 per cent since then, despite the fact that the move dilutes other shareholders in AirAsia.

Fernandes has said that the move shows that he is putting his money where his mouth is, and that the money will come at a time when AirAsia needs it.

“It shows our belief in the airline. The Philippines, Indonesia, India and Japan business will need cash and they are also gold mines in the way Thailand AirAsia is. We were always told by analysts that Thailand would not make money, but look at it today,” Fernandes says.

The Indonesia, Philippines and India units were bleeding and needed cash to move on, while the cash cow were the Malaysian and Thai operations, funding all the operations.

AirAsia has operations in six countries – Malaysia, Thailand, India, Indonesia, the Philippines and Japan.

“We are also buying the new Neos aircraft (that we have to pay for),” adds Fernandes.

AirAsia has total borrowings of 12.72 billion ringgit and it has to pay for eight aircraft that it is taking delivery of this year.

Fernandes and Kamarudin got back to the foundation of the airline to rebuild the structure of the business. Both men have rolled up their sleeves and have separated the accounts of its units, including the aircraft separation and leasing arrangements.

“Many shareholders have been asking for our long-term commitment and we are back,” he adds.

GMT in its report pointed out that AirAsia needed billions of ringgit of capitalisation. In January, AirAsia wanted to raise 1 billion ringgit in multi-currency bonds, but the cost of funding was too high that it abandoned taking that route.

“We have worked hard in creating a prominent Asian airline. No other low-cost airline has our coverage. We have also more or less fixed the Indonesia and Philippines business and India looks more promising now. The Thailand and Malaysian operations are going to have golden years,” he says.

Fernandes adds that his biggest challenge has been market rumours.

“GMT was very damaging and in a way it showed me how fickle the market is and that analysts don’t really look at fundamentals. But it has made me more focused and determined to show the world, and God willing, we will do that as to us AirAsia is a jewel,” Fernandes says.

AirAsia India recently saw Tata Sons raising its stake to 49 per cent in the airline. That equals the stake held by AirAsia Bhd, besides undergoing some management changes.

Although Fernandes says the raising of the cash was needed, Maybank Investment Bank Research senior analyst Mohshin Aziz feels the whole recapitalisation exercise was unnecessary.

“It has good profit and cashflow, so we don’t think it was necessary, as the business is adequately capitalised. Its gearing is 2.3 times. That is why we see the capital raising as unnecessary. In fact, it came as a surprise,” says Mohshin.

About 34 per cent or 342 million ringgit of the 1 billion ringgit AirAsia will raise through the private placement to the founding owners will go to pre-payment and repay debts, 275 million ringgit for funding aircraft, spare engines and other aircraft parts and associated pre-delivery payments, about 103 million ringgit for the construction and development of AirAsia’s new headquarters at KLIA2, and the remaining amount for working capital and others.

This will help reduce the airline’s total borrowings of 12.72 billion ringgit to 12.3 billion ringgit after the completion of the exercise, which is expected in the third quarter of this year.

The gearing level will be reduced to 2.22 times from 2.79 times as at end-2014. The exercise will inflate the share base to 3.341 billion of 10 sen shares each from 2.7 billion now.

Fernandes says that it was the same analysts that had “put our pride down to 70 sen because our gearing was too high then. Cash is king and we are a long-term player. We have not been driven by short-term analysts,” he adds.

“Once upon a time, AirAsia had two planes and nobody believed in us. Look at us now.”

Why now and what’s behind the deal?

Why are Fernandes and Kamarudin agreeing to pump in 1 billion ringgit now and pay 1.84 ringgit a share when during the height of the crisis, the shares had fallen to 78 sen?

“Of course, we had thought about it then … but there was so much volatility at that point,” Fernandes explains.

There have been market reports that AirAsia’s major shareholder Tune Air was in talks with a Chinese company, China Everbright, to privatise AirAsia. But the airline denied such talk, saying that the founders and Tune Air indicated that they are not considering a privatisation at this stage.

That may be the case, but the market talk now is that the Chinese party may still be in the picture of the deal. Speculation is that the Chinese party may be involved in a back-to-back arrangement with Fernandes and Kamarudin to part-fund their 1 billion ringgit share subscription, in return for a business relationship that both parties are building. That business relationship could include AirAsia’s planned venture into China.

Another rumour is that Fernandes and Kamarudin have agreed to sell part of their soon-to-be-acquired block to a ready Chinese party.

But Fernandes denies that there are any such deals in existence.

“There are no back-to-back arrangements. I have no idea what the market is talking about.”

He also denies that there is a plan to privatise the company. It would have cost Fernandes and the related parties some 2.11 billion ringgit to take over AirAsia then based on the closing price of 78 sen on Aug 26, 2015. It is a fact that talk of privatisation has emerged six times since the airline was first listed in November 2004.

So, where is the funding coming from for the private placement?

“It will be debt and cash. What I can say is that the providers of the debts are well-known institutions but I cannot name them,” he says.

For a long time, the duo held less than 20 per cent in the airline. Some have questioned the urgency to raise the stake to close to the threshold of having to make a mandatory general offer, as there is speculation that the move was to prevent hostile bids for AirAsia.

Fernandes says he does not subscribe to such talk.

Nine months later, and he says things were looking good again but there is a lot to be done still.

“Our accounts be consolidated, the customer experience needs to be worked on, we need to respond to customers better and quickly.

“There is still work that needs to be done for AirAsia India, AirAsia Philippines, AirAsia Indonesia, and AirAsia Japan is driven closer.

“We also need to capture more opportunities in Asean. We are in six countries now and would like to add a couple more in Asean. It is nice to have an airline in all parts of Asean, say Cambodia, Myanmar, Vietnam, Brunei and Loas. China is a big market for us. It is a dream, but let us now deliver what we have,” he says.

AirAsia reported a net profit of 554.2 million ringgit in the fourth quarter of financial year 2015 (FY15), compared with a net loss of 428.51 million ringgit a year ago. This was on the back of a 47 per cent increase in revenue to 2.17 billion ringgit and a 21 per cent reduction in the average fuel price from US$95 per barrel to US$75 per barrel.

For full-year 2015, AirAsia’s net profit grew more than six-fold to 540.96 million ringgit, from 82.8 million ringgit in FY14. Revenue was up 16.3 per cent to 6.3 billion ringgit for the period.

For the future, Fernandes says the “outlook remains positive.”

Although globally an economic slowdown is predicted, the first two months have shown positive travel numbers.

The International Air Transport Association says February showed continuing strong demand growth for domestic and international travel. Total revenue passenger kilometres rose 8.6 per cent, compared to the same month last year, and monthly capacity (available seat kilometres) increased by 9.6 per cent, while load factor declined 0.7 percentage points to 77.8 per cent.

CIMB Research analyst Raymond Yap reckons AirAsia will hit the 1 billion ringgit mark in net profit for the current financial year ending Dec 31, 2016 on the back of 6.2 billion ringgit in sales. That puts its earnings per share at 37 sen and its target price for the share is 2.70 ringgit, while Alliance Research has a “buy” call at 2.20 ringgit a share.

US$1 = 3.91 ringgit