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How long will Indigo's flight of fancy last?

With competition slowly coming back, the country’s only profitable airline has its task cut out

Tony Fernandes is pissed with Gillem Tulloch, founder of Hong Kong-based research firm GMT Research, for urging clients to sell or short AirAsia’s stock for lack of transparency in its accounting practices and alleging in a report that the airline overcharged its associate airlines for aircraft, maintenance and other services to artificially boost profits. “The point is that if profitability does not improve from these levels soon, AirAsia is bust,” Tulloch wrote in an email to clients. “If it improves, as AirAsia believes, then the company still needs to raise $1.9 billion.” The development was enough to send the stock of the Malaysia-based low-cost airline — Asia’s largest —crashing 28% to a five-year low. “I am so damn determined now to shut some people up. I’m best when my back’s against the wall. We aren’t going to give up because of one report,” an agitated Fernandes was quoted as saying.

Making matters worse for the 51-year-old is the Indonesian government’s warning to AirAsia to beef up its balance sheet by July 31 or face an operational freeze. Indonesia, which is a loss making venture for AirAsia, wants to reinforce the country’s safety credentials following a plane crash that killed 140 on board, followed by last year’s crash of AirAsia’s jet with all 162 people on board. “If they don’t meet the requirements, we will suspend them. If they don’t have enough capital, how will they ensure the safety of passengers?” Indonesian transport ministry spokesman JA Barata was quoted as saying by news wire agency Reuters.

The adverse turn of events for the poster boy of low-cost airlines in Asia will be music to the ears of his rivals back home in India, where AirAsia has just completed a year of operations. The Federation of Indian Airlines (FIA), which includes the likes of IndiGo and GoAir, has not made life easy for AirAsia after the industry association moved the Delhi high court challenging AirAsia’s permit to operate in the country on the grounds that the previous government’s move to allow 49% foreign investment in civil aviation was for existing players and not new entrants. Incidentally, AirAsia India is a three-way joint venture between AirAsia Berhad of Malaysia (49% stake), Tata Sons (30% stake) and Telestra Tradeplace (21%). But overcoming the odds, since its


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