AirAsia Executive Officer Tony Fernandes addresses the media during a press conference in Kuala Lumpur in a file photo. Photo: AFP/Manan Vatsyayana

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Malaysian mogul Tony Fernandes, one of the aviation industry’s best-known executives, temporarily stepped down on February 3 as chief executive of the AirAsia budget carrier he co-founded amid US$50 million bribery allegations involving Airbus, the world’s largest plane maker.

The bribery claims involve two unnamed senior AirAsia executives and were brought forward by prosecutors from the United Kingdom’s Serious Fraud Office (SFO) on January 31, which said Airbus had used hidden payments to win deals in a pattern of worldwide corruption. Airbus admitted to the broad allegations as part of a record $4 billion settlement to avoid criminal prosecution.

The Malaysian Anti-Corruption Commission (MACC) has initiated an investigation into the claims, with its chief commissioner Latheefa Koya issuing a statement saying the anti-graft agency is in touch with UK authorities over the matter. Malaysia’s aviation and securities regulators have also launched independent probes into the spiraling scandal.

As global carriers grapple with lower margins and air travel disruptions linked to the worsening coronavirus epidemic, allegations of bribery and corruption have cast a cloud of uncertainty over one of the best-known brands in Asian aviation and put AirAsia Group Bhd and its long-haul subsidiary AirAsia X Bhd’s share prices in a tailspin.

Shares of AirAsia fell over 10% to 1.15 ringgit on Tuesday, a day after tumbling as much as 11% on the local bourse. AirAsia X Bhd shares fell 4.17% to a record low of 11 sen after consecutively closing lower for the past five trading days.

AirAsia Airbus A320 airplanes are parked on the tarmac at the low-cost carrier Kuala Lumpur International Airport 2 (KLIA2) in Sepang in a file photo. Photo: AFP

Though it is not explicitly clear which executives were involved in the reported corruption, the SFO’s bribery allegations concern a 2012 sponsorship agreement between the now-defunct Caterham Formula 1 racing team and the European Aeronautic Defence and Space Company (EADS), Airbus’ then-parent company.

Prosecutors claim EADS paid $50 million to sponsor a racing team jointly owned by two people described only as AirAsia Executive 1 and Executive 2.

Fernandes and AirAsia Group Chairman Kamarudin Meranun, who also stepped down from his executive role on February 3, purchased Caterham in 2011 but have categorically denied allegations of wrongdoing.

“Caterham F1, the company alleged to have been sponsored improperly by Airbus, was at the relevant time a Formula 1 racing team that had gone round the globe promoting amongst others AirAsia, AirAsia X, GE and Airbus,” read a statement by the AirAsia co-founders, who will both remain advisers to the airline while probes are ongoing.

“Throughout the period we were shareholders in Caterham, the company made no profit and was eventually disposed of for 1 pound sterling in 2014. From start to finish, this was a branding exercise and not a venture to make profit…We would not harm the very companies that we spent our entire lives building up to their present global status.”

AirAsia, the world’s largest customer of Airbus’ single-aisle jets, has denied ever making any purchase decisions that were premised on Airbus sponsorship. Fernandes and Kamarudin said, moreover, that they are being unfairly targeted and maintain that SFO had not sought an explanation or clarification from the company over the bribery allegations.

A Malaysian woman walks past an AirAsia advertisement at Kuala Lumpur Sentral railway station in Kuala Lumpur on May 26, 2016. Photo: AFP/Mohd Rasfan

Apart from the $50 million allegedly paid by EADS between October 2013 and January 2015, prosecutors also claimed that Airbus employees had tried to pay an additional $55 million to the AirAsia and AirAsia X’s directors and employees. That payment was never made, however, owing to a review of third-party relationships initiated by Airbus.

Court documents included a purported email from an AirAsia executive to Airbus senior employee stating: “We have kept our side of the deal…pls don’t let us down.” Airbus initiated a freeze on payments to agents and intermediaries in October 2014, according to prosecutors, who claimed corruption boosted Airbus’ profits by more than $1 billion.

AirAsia runs an all-Airbus fleet of 274 planes. Fernandes is known for transforming the once-floundering and indebted carrier into Asia’s biggest budget airline after acquiring it for just one Malaysian ringgit in 2001. Fernandes and Meranun are expected to step aside for two months, a duration which could be extended at the discretion of AirAsia’s board.

Senior company executive Tharumalingam Kanagalingam has taken charge as acting chief executive officer (CEO) as the carrier’s top two executives vow to fully cooperate with the MACC. The latest probes are a heavy blow to Fernandes, who also faces allegations of bribery in India in relation to AirAsia’s domestic entity, AirAsia India.

Federal investigators in India summoned Fernandes last June over allegations his airline broke rules in relation to obtaining a flying license by lobbing government officials “to secure mandatory approvals, some of them through non-transparent means.” The embattled Malaysian mogul has rejected allegations of wrongdoing in that case as well.

Travelers looks on as AirAsia assistance crew assists them at the sales kiosk in Kuala Lumpur International Airport 2 in Sepang, outside Kuala Lumpur, Malaysia, Friday, May 9, 2014. AirAsia made its maiden voyage today from KLIA 2.(Photo by Joshua Paul/NurPhoto)

Hailing the low-cost carrier’s rise as a Malaysian success story, Fernandes controversially endorsed then-prime minister Najib Razak ahead of a historic general election in 2018 that the incumbent lost. At the time, Fernandes appeared in a video crediting AirAsia’s achievements to the then-premier’s stewardship of the economy and government support for his companies’ growth plans.

The 55-year-old soon walked back that endorsement after the now-ruling Pakatan Harapan (PH) coalition emerged victorious, claiming he had wrongly attempted to appease Najib’s scandal-plagued government. “I am sorry for what has gone on. I buckled at the crucial moment in our history,” Fernandes said. “It wasn’t right and I will forever regret it.”

Analysts believe AirAsia and AirAsia X’s share prices will fall further if and when the unnamed top executives allegedly involved are identified and potentially charged.

“The implications of the AirAsia bribery scandal are already evident as stocks in the company plummet,” said Sarah Bauder, a senior market analyst at SophisticatedInvestor.com.

“The scandal could potentially be detrimental to AirAsia’s reputation, coupled with the travel restrictions imposed by the coronavirus outbreak, which could likewise impede passenger growth and earnings, resulting in a decrease in net profits,” she told Asia Times.

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