Tag: airasia

According to Malaysia’s Prime Minister Mahathir Mohamad, who controversially chose to weigh in on a bribery scandal involving top executives at budget airline AirAsia amid ongoing official probes, a bribe is only a bribe when an inducement is pocketed for personal gain.

“I hear there are allegations that AirAsia is involved in corruption. I am hesitant to comment, but usually, when governments buy equipment, we always ask for an offset,” Mahathir said on February 6.

“If the money we obtain does not go into our own pocket, but instead is meant for a certain purpose, then it becomes an offset and this is not bribery. That’s my view,” he said.

The premier’s remarks were widely seen as tacit approval of AirAsia business dealings that British prosecutors at the United Kingdom’s Serious Fraud Office (SFO) have deemed as fraudulent.

Bribery claims involving two still-unnamed AirAsia executives came to light late last month after French airplane maker Airbus admitted to paying US$50 million to secure a large aircraft order with the budget carrier.

Tony Fernandes, the low-cost airline’s charismatic chief executive, and his joint-venture partner, Kamarudin Meranun, have been implicated in the scandal.

Both men stepped down from AirAsia temporarily last week after issuing a public statement categorically denying allegations of wrongdoing and vowing to work with investigators.

The Malaysian Anti-Corruption Commission (MACC) and national aviation and securities regulators have since opened probes into the allegations, casting a cloud of uncertainty over one of the best-known brands in Asian aviation, one that has arguably put Kuala Lumpur on the global map as a regional travel hub.

The Prime Minister’s Office chose to clarify Mahathir’s statement as some critics speculated that he had sought to influence ongoing official investigations.

Legal experts and others said the government procurement contract practices he referred to are not applicable to transactions by private entities that are answerable to public shareholders.

“In answer to questions by the press, he (Mahathir) pointed out that it is normal for the government to request for offset to benefit from big purchases. He did not say that AirAsia was benefiting from this normal practice,” read a statement from the Prime Minister’s Office. “It is up to the investigators to determine whether it is a bribe or not.”

The SFO’s bribery complaint concerns a sponsorship deal involving the now-defunct Caterham Formula 1 racing team then-privately owned by Fernandes and Meranun in their personal capacities, which Airbus admitted was the recipient of a $50 million inducement.

AirAsia maintains the sponsorship deal was a “branding exercise” supported by Airbus.

“You cannot ‘offset’ a bribe or direct monies to be paid to others after inflating the value and calling it an ‘offset’. That is corruption,” said Dave Ananth, a former Malaysian magistrate.

“Mahathir has his views [but] perhaps it is best not to comment whilst investigations are ongoing.”

Other legal wheels are in motion, with at least one AirAsia shareholder maneuvering to take so-called statutory derivative action, a lawsuit against a director or officer of a company who allegedly committed wrongdoing.

Mathew Thomas Philip, a lawyer representing the individual shareholder who asked not to be named, elaborated on the matter at a recent public event in the Malaysian capital.

“The position that we are taking is that when the news broke out that a $50 million bribe was made, in my view, the board of directors had a requirement to disclose [whether] they have in their possession relevant material that this is not a bribe, that this was in fact something that was disclosed to the board,” said Philip.

Section 221 of Malaysia’s Companies Act, he explained, requires directors with an interest in a contract or proposed contract to declare the nature of that interest at a meeting of the board of directors. In simple terms, if those interests are disclosed and approved by the board, they cannot be considered a bribe.

“If this payment was made, at that particular time it would be incumbent on those directors who had an interest in that sports company to have declared it to the board meeting,” he continued. “Under our listing requirements, it was mandatory for them to have immediately made that announcement because it is price sensitive information.”

Philip, founder and managing partner of law firm Thomas Philip, told Asia Times that his client would send a notice to AirAsia’s company’s directors on February 10 outlining his intention to take statutory derivative action. Malaysian law allows companies a 30-day period to initiate, intervene in or defend such a legal proceeding if it chooses to do so.

“We don’t see any disclosure. The law is quite clear, you have to disclose this. Really, the rules are you don’t come and justify post-nondisclosure. The issue is about nondisclosure, which leads to the fact that technically, it is a secret profit,” said Philip. “There’s no such thing as ‘offset’ in the context of this case.”

If AirAsia’s board of directors can substantiate that such a disclosure had been made and approved, which it has yet to do despite denials of impropriety, Philip said his client would withdraw their notice of statutory derivative action. “I think their response to the [notice] letter will say everything,” Philip remarked.

When news of the bribery scandal emerged, AirAsia Group Bhd and its long-haul subsidiary AirAsia X Bhd’s shares went into free-fall.

On February 5, AirAsia Group Bhd’s share price fell to 1.12 ringgit, a 52-week low, as a massive selldown saw its trading volume exceed the daily average by 430%. AirAsia X Bhd shares hit a record low of 11 sen on February 4.

Though the carrier’s shares rebounded after Mahathir’s comments, market analysts expect further turbulence as separate bribery probes make headway.

“AirAsia’s stock price is likely to fall further if the MACC or SFO brings successful charges against the two executives or the airline,” said Mark Pacitti, founder and managing director at investment firm Woozle Research.

Both scenarios, he said, would be detrimental to the low-cost carriers and their subsidiaries’ future growth potential.

“That level of uncertainty would likely bring forward a wave of analyst downgrades, sending the shares lower. An unfavorable result from either the SFO or MACC probes into the corruption scandal risks causing long-term financial, commercial, and reputation damage to the founder and airline that will take many years to reverse,” Pacitti said.