Bursa Announcements

Services Agreement With AirAsia X Sdn. Bhd. ("AAX") (Formerly Known As Fly Asian Xpress Sdn. Bhd.)

BackOct 31, 2007



Contents :

1. Introduction
    AirAsia Berhad (“AirAsia” or “the Company”) is pleased to announce that it has today entered into a Services Agreement (“the Agreement”) with AAX for the Company to provide aviation-related services to AAX in its operations of a budget long haul air service (“the Budget Long Haul Service”) which is scheduled to commence on 2nd November 2007.
2. Details of AAX
    AAX was incorporated on 19th May 2006 and had its name changed to AirAsia X Sdn Bhd on 21st September 2007.

    As previously announced on 20th July 2007, AAX had entered into a Brand License Agreement with the Company whereby AAX was permitted to use the “AirAsia” brand in its operations with an agreed annual fee structure payable to the Company.

    On 13th September 2007, AirAsia completed a share subscription exercise whereby the Company subscribed to 26,666,667 Redeemable Convertible Preference Shares Series 1 of RM1.00 each for a cash consideration of RM26,666,667. This represents 20% of the total issued and paid-up share capital of AAX.

    The current major shareholder of AAX is Aero Ventures Sdn. Bhd. (formerly known as Mangkin Masyhur Sdn. Bhd.), a company in which both Dato’ Anthony Francis Fernandes and Dato’ Kamarudin Bin Meranun are substantial shareholders.

3. Salient terms of the Agreement
    Under the terms of the Agreement, the Company has agreed to provide AAX the following services (“Services”) to be rendered by a number of departments within AirAsia for a Fee**:

    1. Engineering
    2. Cargo
    3. Flight Operations
    4. Procurement
    5. In-flight Sales
    6. People (Human Resources)
    7. Treasury
    8. AirAsia Academy (Training)
    9. Communications
    10. Information Technology
    11. Ground Operations
    12. Security
    13. Ancillary Revenue
    14. Commercial, Sales & Distribution
    15. Go Holiday

    The scope of Services may be varied from time to time with the parties mutual consent. Certain services are made subject to pre-agreed service levels.

    Based on the scope of AAX’s planned operations, it is estimated that the monthly fee payable by AAX to the Company will be approximately RM1,300,000 per month which is inclusive of a 10% mark-up. Additionally, AAX has also agreed to pay a one-off fee of approximately RM800,000 for the setting up of the Services which are specific to the needs of AAX’s long haul operations.

    The payment of the Fee shall be on a monthly basis.

    The parties agree that the fees specified shall no longer be applicable:

    1. Upon the expiry of a period of one (1) year from the date of the Agreement (or a further period of one (1) year which AAX at its discretion may extend) ; or

    2. When AAX operates more than three (3) A330 aircraft in its fleet, whichever shall occur first. It was also agreed that either party may terminate the Agreement by serving a six month prior written notice for whatever reason.

    **In arriving at the figure for the Fee, a Special Committee was formed with the purpose of negotiating with AAX and to ensure that all terms under the Agreement are entered into on an arm’s length basis. The Special Committee comprised independent members of the board and senior management of the Company. Dato’ Anthony Francis Fernandes and Dato’ Kamarudin bin Meranun being interested parties to the Agreement were not members of the Special Committee.

4. Rationale for entering into the Agreement
    The Company views the arrangement as beneficial for the following reasons:

    (a) To ensure that the AirAsia brand granted to AAX under the Brand License Agreement is protected by ensuring the quality and service level is of the same high standards set and practised by the Company;

    (b) Operationally, as AirAsia is scaling up its own operations to cater for its future growth, it will have some capacity to offer its services such as training at AA Academy, Flight Operations, etc. to AAX’s Budget Long Haul Service. This will be an additional source of recurring income to AirAsia.

5. Financial Risks
  • The downside financial risks associated with the provision of the Services are expected to be very limited because the Company will not be investing in any specialised or expensive equipment. However, where required, there will be a marginal increase in the manpower required to undertake the Services. In the event that the Agreement is terminated for whatever reason and at any point in time, these additional resources can be readily absorbed by the Company’s ever expanding short haul operations.
  • The Company will also not be providing any financial guarantees or be made liable for the non-performance of AAX’s Budget Long Haul Service falling outside the scope of the Agreement. All day to day general control and financial management, operational and strategic planning and corporate decisions will continue to rest with AAX’s own appointed management and Board of Directors, which is completely independent of AirAsia.

6. Directors’ and major shareholders’ interests
    • Dato’ Anthony Francis Fernandes and Dato’ Kamarudin bin Meranun are directors and major shareholders of the Company. Hence, they are deemed interested in the Agreement. They have previously abstained and will continue to abstain from all Board and management deliberations in respect of the Agreement and provision of the services.

      The interested directors’ and interested major shareholders’ direct and indirect shareholdings in AirAsia as at 31st October 2007 are as set out in the table below.
No. of Shares
No. of Shares
Dato’ Anthony Francis Fernandes 2,627,010 0.11 729,458,382* 30.9
Dato’ Kamarudin bin Meranun 1,692,900 0.07 729,458,382* 30.9
    • Note:

      * deemed interested by virtue of Section 6A of the Companies Act, 1965 through a shareholding of more than 15% in Tune Air Sdn Bhd
    • Save as disclosed no other directors and/or major shareholders of AirAsia and/or persons connected with them have any interest, whether directly or indirectly, in the Agreement.

7. Directors’ opinion
    • Save for the above interested directors (who have abstained), the Board having considered all the relevant factors in respect of the Agreement is of the opinion that entering into the Agreement is in the best interest of the Company.

8. Financial effect of the Agreement
    • This Agreement will not create any material financial impact nor will it have any effect on the share capital and substantial shareholders’ shareholdings of AirAsia in the current financial year. It is also not expected to have a material effect on the consolidated net assets of AirAsia and the consolidated earnings of AirAsia for this financial year ending 31 December 2007.

9. Approval required
    • AirAsia does not require the approval of its shareholders or any authorities to enter into the Agreement.

10. Document available for inspection
    • The Agreement is 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 31st October, 2007.

Announcement Info

Stock Name AIRASIA    
Date Announced 31 Oct 2007  
Category General Announcement
Reference No CU-071031-340D8