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Covid-19 brings Tony Fernandes’s global empire down to earth



Tony Fernandes is one of Asia’s most marketing-savvy entrepreneurs, often drawing comparisons with Richard Branson, the British entrepreneur behind Virgin and his one-time mentor and boss.

The Malaysian tycoon bought AirAsia for less than $1 in 2001 and turned it into one of the largest low-cost carriers in the region.

He built his empire using many of the publicity-friendly tactics for which Sir Richard became famous. In 2013, he made headlines when the Virgin boss dressed as an AirAsia flight attendant — in lipstick and fishnet stockings — after losing a bet. Announcements of new aircraft orders at air shows often resemble variety shows featuring cabin crew in AirAsia’s red uniforms.

But now, Mr Fernandes is facing one of his toughest challenges as the coronavirus pandemic pummels his business.

AirAsia X, his long-haul airline, is saddled with Rm63.5bn ($15.3bn) of debt and earlier this month it unveiled a restructuring plan to cope with “severe liquidity constraints”. AirAsia X’s deputy chairman told local media at the weekend the unit had “run out of money”, adding it was liquidating its Indonesian business and writing down its 49 per cent stake in Thai AirAsia X. The long-haul arm’s share price has plunged 77 per cent this year.

Line chart of Share price in Malaysian ringgit showing AirAsia's stock hits turbulence

AirAsia, the heart of Mr Fernandes’s empire, is facing its own struggles and the airline’s share price has fallen 65 per cent in 2020. The company has pulled out of Japan and its Indian airline, a joint venture with the Tata Group, has come under renewed scrutiny after reports the Malaysian business had stopped funding it. Mr Fernandes denied the claim.

The crisis has forced AirAsia to seek financial support from the Malaysian government for the first time. “In 19 years, we’ve never [had] any necessity to ask for a government-backed loan,” Mr Fernandes told the Financial Times. “This is solely out of Covid, where we lost so much of our sales.”

Mr Fernandes’s difficulties are indicative of the existential challenge facing the airline sector, with travel restrictions wiping out passenger traffic worldwide. 

But some analysts also suggest the group has overstretched, even if a collapse remains unlikely.

AirAsia quit Japan months after EY, the group’s auditor, said the pandemic had cast “significant doubt” on the carrier’s ability to continue as a going concern. EY said that in the 2019 financial year, AirAsia registered a net loss of Rm283m and its current liabilities exceeded current assets by Rm1.84bn.

Mr Fernandes’s businesses sit under an umbrella company called Tune Group, with divisions ranging from the airlines to insurance, professional football and hotels.

Mr Fernandes and Kamarudin Meranun, his longtime business partner, jointly hold 32.18 per cent of AirAsia’s shares via Tune Live, an investment holding company, and Tune Air, Tune Group’s airline division.

Tune Group is AirAsia X’s largest shareholder with a stake of 17.83 per cent, followed by AirAsia at 13.76 per cent. Mr Fernandes holds a 2.69 per cent stake in AirAsia X.

Mr Fernandes is now concentrating on the airline after years of high-profile forays into different sectors. “AirAsia is the most important baby to me so that’s where most of my focus will be,” he said.

The tycoon — who is rarely seen without his signature red AirAsia baseball cap — bought the Lotus Formula One racing team in 2010 and a year later acquired Queens Park Rangers, the English football team, from Bernie Ecclestone, the former F1 boss.

Tony Fernandes has made high-profile forays into sports, including acquiring the English football team Queens Park Rangers, but has had limited success © Reuters

QPR were relegated from the Premier League in 2013 and after winning promotion back to the top tier of English football, were relegated again in 2015.

Mr Fernandes quit F1 in 2014, when he sold the team before it collapsed into administration. 

“Both F1 and football are highly speculative. In the end it’s not how much effort and money you put into it, everything has to fall in place and you’ve got to be lucky,” said Mr Ecclestone. “He was probably trying to do too much. The wrong people take advantage if you’ve got money and I think in his case [that] is what happened. He’s not an idiot as far as business is concerned by any means.”

The current crisis has highlighted three underlying challenges for Mr Fernandes’s business: the long-haul unit’s chronic underperformance; the company’s huge aircraft fleets; and the difficulty of sustaining the international network.

AirAsia X was struggling before the pandemic hit, according to analysts, who point to the difficulty of making a low-cost strategy viable for a long-haul airline. Since listing in Kuala Lumpur in 2013, the unit has registered a full-year net profit just twice.

Column chart of Net debt (RM bn) showing Debt leaps for AirAsia X

“If [Mr Fernandes] stuck to just short-haul and even just stuck to Malaysia . . . then he would be a formidable force,” said a banker who has previously worked with the airline.

AirAsia is also encumbered by a huge aircraft fleet and has some 350 Airbus narrow-body aircraft on order. It is the second biggest customer for Airbus’s popular A320 single-aisle aircraft.

“We have been sceptical about [the] sheer number of orders they placed for some time,” said Sash Tusa, an analyst at Agency Partners. “Any time an airline gets so big that it starts placing orders which are much bigger than comparable airlines, it is time to get very, very concerned.”

Mr Tusa forecast that only 60 aircraft would be delivered until the end of 2027.

Mr Fernandes earlier this month said he planned to return as many AirAsia planes as possible and cut the fleet by a quarter to 180 aircraft.

The pandemic has also renewed questions about the carrier’s aggressive overseas expansion. “AirAsia at its height . . . arguably was south-east Asia’s largest low-cost carrier,” said Paul Yong, an analyst at DBS. Units in Malaysia and Thailand were the most successful but “going into Indonesia and the Philippines was a tougher proposition because there were already other leaders”.

Mr Fernandes admitted that the company could exit more markets. “For our remaining five airlines there may come a point where we have to maybe exit one but that point hasn’t [arisen] yet,” he said.

Analysts point to India, where the company is in need of recapitalisation.

Neelam Mathews, a New Delhi-based aviation analyst, said the outlook for the airline was “pretty dismal”, adding that competition would become more aggressive following the pandemic. 

Line chart of Passenger load factor (%) showing Covid-19 hits air travel demand

Mr Fernandes, however, sees signs of hope in Asia. Domestic travel in Thailand and Malaysia respectively, for example, have reached 80 per cent and 60 per cent of AirAsia’s pre-pandemic levels, he said.

He also hopes AirAsia’s new super app — a one-stop travel, ecommerce and fintech platform — will be a route to better insulating the company from the blows typically suffered by airlines.

“It’s a cyclical business in between volcanoes and tsunamis,” he said.

Services delivered on the app will be expanded from Malaysia to the rest of south-east Asia in the next three months. 

Regardless, analysts say the airline is unlikely to collapse.

“The low-cost carrier model post-Covid will be as resilient as it was before and even stronger relative to full-service carriers,” said Mr Yong.

Mr Fernandes will no doubt also fall back on the guiding business principles he described in his memoir to find a way out of the morass.

“I’m a black and white person, which can get me into trouble . . . You need to lead through clarity, not manipulation,” he wrote. 

Tony Fernandes: from music to airlines


Tony Fernandes is named CEO of Warner Music Malaysia at the age of 28


Fernandes buys AirAsia for less than $1 and starts building what will become one of the largest budget carriers in the region


The carrier’s long-haul unit kicks off operations under the branding ‘AirAsia X’


Fernandes buys Formula One Team Lotus, setting off a legal fight over naming rights with a separate team called Lotus Cars, before buying Caterham Cars and renaming his team after the sports car maker


Fernandes buys Bernie Ecclestone’s majority stake in British football team Queens Park Rangers


Sells struggling motor racing team to an unnamed consortium of Swiss and Middle Eastern investors and ends costly foray into Formula One

Jul 2020

AirAsia’s auditor says the coronavirus pandemic cast “significant doubt” on the company’s ability to continue as a going concern, triggering an 18 per cent share price drop

Oct 2020

AirAsia shuts Japan unit after six years in operation citing fallout from the pathogen. Later AirAsia X’s deputy chairman says unit has “run out of money”, adding it would liquidate its Indonesian business and write down its 49 per cent stake in Thai AirAsia X

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Iranian TV action thriller delivers warning to Zarif




It is hardly surprising that Mohammad Javad Zarif, Iran’s foreign minister and nuclear negotiator, is not a fan of Gando, a popular television drama that depicts an incompetent minister who scuppers nuclear talks with world powers by hiring dual nationals who turn out to be spies for MI6.

The series — made by an institute believed to be affiliated to the elite and hardline Revolutionary Guards — “is a lie from the beginning to the end” that “damages foreign policy more than me” by fuelling public mistrust, Zarif said.

By focusing on the nuclear talks, the Guards’ motive goes beyond creating compelling drama, reformist analysts say. Iran is in discussion with western powers about reviving the nuclear deal, a key reformist achievement, and hardliners want to deter the popular foreign minister from declaring his interest in the presidency in what is a crucial election year.

“I’ll be grateful to Gando-makers to let us continue our current job,” Zarif said this month, and commented that he would not run for the presidency.

The possibility of nuclear talks with the US and other powers has complicated an already fraught Iranian political scene ahead of the June election. Many reformists are pinning their hopes on Iran’s top diplomat to reinvigorate the nuclear deal and boost support at the ballot box. Hardliners might prefer to negotiate the deal themselves after the election. The polls are also seen as particularly crucial in case supreme leader Ayatollah Ali Khamenei, 81, dies during the next president’s term.

Pendar Akbari, left, and Ashkan Delavari, right, in a scene from ‘Gando’
Pendar Akbari, left, and Ashkan Delavari, right, in a scene from an episode of ‘Gando’. The series title refers to an Iranian crocodile able to distinguish its friends from its enemies © Bahar Asgari/Shahid Avini Cultural and Artistic Institute via AP

The purpose of Gando, which refers to an Iranian crocodile able to distinguish its friends from its enemies, “is to tell Zarif that should he dare to announce his candidacy, he will be destroyed immediately,” said one reformist analyst. “When the intelligence service of the Guards truly believes in the Gando plot lines, it means even if Zarif decides to defy such warnings, he will not be allowed to run.”

Centrist president Hassan Rouhani is due to step down this year after two terms and it is not yet clear who the presidential candidates will be. Politicians register as late as May and then have to be vetted by the Guardian Council, the hardline constitutional watchdog, which can disqualify nominees. Potential hardline candidates include Mohammad Bagher Ghalibaf, the parliament speaker and a former guards commander; Ebrahim Raisi, the judiciary chief; and Ali Larijani, a former speaker of parliament. On the reformist side, speculation has centred on Es’haq Jahangiri, first vice-president, Hassan Khomeini, a grandson of the founder of the Islamic republic, and Zarif.

A US-educated career diplomat widely respected in the west for his pragmatism, Zarif was instrumental in the historic deal in 2015, under which Iran curbed its nuclear activity in exchange for the lifting of sanctions. But Donald Trump abandoned the accord in 2018, imposed sanctions, including on Zarif, and said he would pursue a new accord to contain Iran’s regional and military policies. The US move emboldened hardliners, confirming to them the untrustworthiness of the US.

Zarif’s background in the US both as a university student and as Iran’s head of mission at the UN — during which he met US politicians including then senator Joe Biden — has long made him a source of suspicion for hardliners.

This wariness of both Zarif and the west is evident to viewers of Gando, as is the heroism of the Revolutionary Guards. Mohammad, the action hero protagonist, warns that western negotiators may sabotage refineries as part of nuclear talks. Mohammad works out of elaborate facilities akin to those in a James Bond film. The fictional foreign minister is advised by a media adviser, the main culprit, “to enter into direct talks with the US and accept the conditions of the leader of the global village”.

Vahid Rahbani in a scene from an episode of ‘Gando’
Vahid Rahbani in a scene from an episode of ‘Gando’. State TV abruptly stopped broadcasting the series that was less than halfway through its 30-episode run © Hassan Hendi/Shahid Avini Cultural and Artistic Institute via AP

The dramatic scenes reflect, in part, the worldview of some of Zarif’s critics. “Reformists, Mr Zarif and his lobby group in Washington [Iranian dual nationals] should be wiped out from Iran’s politics,” said an aide to a senior hardline politician who is a potential presidential candidate. “We have to get rid of this cancerous tumour once for good.”

Gholamali Jafarzadeh, a former conservative member of parliament, said Zarif “is not a good statesman and should not run for president” while “reformists should know that their choices have no chance to be allowed to run”. 

This month, state TV abruptly stopped broadcasting the series that was less than halfway through its 30-episode run. Local media said broadcasts would resume when the presidential race was over. Iran’s centrist president Hassan Rouhani, whose signature achievement is the nuclear deal — alluded to the show on Wednesday and said “people’s money” should not be spent on “fabrication of the truth” and “distortion of facts”.

After three years of sanctions, many voters are disillusioned by the infighting and the prospect of real change, whatever the outcome of the election. “Whether Zarif or a figure more senior than him runs or not, I’m not going to vote,” said Hamid, a 40-year-old engineer. “Let the Guards win the election as they are the ones who are running the country anyway. Why shall I make a fool of myself?” 

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Rising inflation complicates Brazil’s Covid-19 crisis




After seven months in lockdown, Michele Marques received some unwelcome news when she returned to work: while she was away the prices of almost all the products she uses as a hairdresser had soared.

“A box of gloves rose 200 per cent. Colouring products increased at least 100 per cent,” said the 37-year-old from São Paulo, underlining how costs were rising while her revenue had collapsed. “I had to raise the price of my services, too.”

It is a dynamic that is playing out across Brazil, adding an extra layer of complexity to the country’s coronavirus crisis, which has already claimed the lives of almost 350,000 individuals and pushed hospital services to the brink.

With much of Latin America’s largest economy being shuttered, inflation is surging to its highest level in years, fuelling a silent scourge of hunger among poorer citizens that has run in parallel to the Covid-19 pandemic.

“The high price of staple foods — rice and beans, for example — has led to the disappearance of these items from the table of millions of Brazilians,” said Ana Maria Segall, a researcher at the Brazilian Research Network on Food and Nutritional Sovereignty and Security. In the 12 months to the end of March, the price of rice increased 64 per cent and black beans 51 per cent.

“In Brazil currently food inflation has penalised the very poorest, preventing them from having adequate access to food and in many situations leading to hunger,” she said, adding that rising unemployment and the curtailment of social programmes were also contributing factors.

Volunteers hand out food in São Paulo © Alexandre Schneider/Getty Images

Less than half of Brazil’s population of 212m now has access to adequate food all the time, with 19m people, or 9 per cent of its inhabitants, facing hunger, according to a recent report by Segall’s group.

“I’m doing some odd jobs, but it’s not enough to keep us going,” said Jonathan, a 28-year-old who lost his job in the kitchen of a Chinese restaurant in São Paulo when the pandemic began. He said he now struggles to provide enough food for his three young children and pregnant wife.

On a 12-month basis, inflation in June is expected to surpass 8 per cent, far above earlier estimates. In the 12 months to March, food prices jumped 18.5 per cent, while the price of agricultural commodities in local currency surged 55 per cent and the cost of fuel increased almost 92 per cent.

Line chart of Percentage increase over past 12 months showing The price of rice in Brazil is soaring

The developments pose a fresh challenge to President Jair Bolsonaro, who is already under fire for his handling of the Covid-19 pandemic. Across Brazil’s biggest cities, graffiti has sprung up labelling the populist leader “Bolsocaro” — a portmanteau of his name and the Portuguese word for expensive.

The rising prices are also likely to provide useful ammunition to leftist former president Luiz Inácio Lula da Silva, who returned to the political fray last month and may challenge Bolsonaro in elections next year.

“Bolsonaro is to blame for the increase in food prices, he is to blame for everything. They have to remove this guy,” said Maria Izabel de Jesus, a retiree from São Paulo.

Armando Castelar, a researcher at the Brazilian Institute of Economics, said the government had underestimated inflation both in terms of the numbers and also “how much a concern it should be”.

He attributed the rising prices to the devaluation of the Brazilian currency, triggered in part by the stimulus packages passed by the US government — which helped to bolster the dollar and led to higher Treasury yields — and the brighter economic outlook outside Latin America.

“You have a situation where commodity prices are going up because the global economy is going to grow a lot this year. With the growth in the US, interest rates are going up and the dollar is strengthening. This puts a lot of pressure on the exchange rate in Brazil and emerging markets in general,” he said.

As the spectre of inflation loomed last month, the Brazilian central bank raised its key interest rate by 75 basis points, higher than the half-percentage point many economists had expected. A further rate rise is expected next month.

“The central bank acted correctly, but it cannot stop there. It is important not to be too lenient in dealing with this,” said Castelar.

Silvia Matos, a co-ordinator at the Brazilian Economy Institute, also pointed to Brazil’s weakening currency as a contributing factor to inflation. But she said the slide in the real was triggered by investor concerns over Brazil’s deteriorating public finances.

Following the creation of two separate stimulus packages to mitigate the impact of Covid-19, government debt has risen to about 90 per cent of gross domestic product, a high level for an emerging market economy.

The rollout of the second of these packages began this month, with 45m Brazilians set to receive $50 a month for four months.

Critics said, however, these stipends were not nearly enough to keep people both fed and at home in lockdown.

“It is essential that the emergency aid is of a greater value, so that people do not leave the house but no one also stays at home starving,” said Marcelo Freixo, a federal lawmaker with the leftwing PSOL party.

“We need to reduce the circulation of the disease. Brazil is already experiencing 4,000 deaths per day. We will reach 500,000 total deaths by the middle of the year.”

Matos says that inflation had hit poorer citizens much harder than middle-class and rich Brazilians because a larger portion of their income was dedicated to food, the price of which has increased substantially.

“The only thing that could help right now is to get out of this pandemic,” she said.

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Can CVC pull off a $20bn ‘deal of the century’ at Toshiba?




Proposed management buyout looks like an improbable win for the Japanese conglomerate’s embattled CEO

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