AirAsia eyeing foreign partner for ground ops
Khairul Khalid 
AirAsia’s ground operations include passenger services, ramp services, load control and flight operations, and security services

Budget airline AirAsia Bhd is planning to hive off 50% of its ground-handling business and form a new joint venture. The company disclosed this during a meeting with investors this month. An industry analyst tells FocusM the move is part of the airline’s ongoing streamlining process. 

“It is part of a push to dispose of non-core assets and return proceeds to shareholders. AirAsia has promised shareholders a special dividend (once) every two years,” says the analyst.

Although the budget carrier did not indicate who its potential partner is, a source says it could be a major global ground-handling player. This narrows the list of possible partners to operators like Swissport International Ltd, Dnata, SATS Ltd, Fraport AG, and Menzies Aviation.

According to the source, the new joint-venture vehicle would likely be Ground Team Red Sdn Bhd (GTR). GTR is a wholly-owned subsidiary of AirAsia that provides passenger services, ramp services, load control and flight operations, support services, security, management of administrative functions. For its financial year ended 2015, GTR posted zero revenue and a loss. It has minimal assets. One of its directors is AirAsia CEO Aireen Omar.

Last month, GTR purchased equipment worth RM4.63 mil from AirAsia’s sister company and long-haul budget airline, AirAsia X Bhd (AAX), in a related party deal. In a regulatory filing, AAX had announced the sale and purchase agreement (SPA) with GTR was for the sale and transfer of ramp/ground equipment as well as employees. AAX stands to gain RM225,972 from the equipment disposal.

GTR’s main focus is to provide efficient in-house ground handling services with lower rates. The company is also expected to tap external business from third party airlines in Malaysia.

AAX also inked agreements with TCR Solution Sdn Bhd and I Tech Engineering and Machinery Sdn Bhd to novate to GTR’s lease and maintenance agreement, full service rental agreement and repair and maintenance contract.

The sale of ramp equipment and the novation agreements are to facilitate the establishment of GTR, through the integration of all AirAsia and AAX’s ground equipment assets. This will be facilitated through GTR taking ownership of the ground equipment through the SPA, as well as via the novation agreements by AAX to GTR.

A 2014 study by the Centre for Asia Pacific Aviation (CAPA) reported that the airport ground-handling business worldwide is estimated at over US$80-100 bil per annum.

“Stiffer competition has affected margins of the ground-handling business and has led to consolidation. With many airlines experiencing losses due to the volatile market, selling off the ground-handling business is seen as one of the low-hanging fruits to reduce overheads,” says the analyst.

AirAsia group CEO Tony Fernandes plans to rope in foreign partners for its ground-handling business

Other than AirAsia, the local aviation scene seems to be going through a phase of rationalisation in the airport ground-handling industry.

FocusM previously reported that Cathay Pacific Airways is also mulling the sale of its ground-handling business at Penang International Airport, which includes aircraft maintenance and engineering.

Ground handling is not the only business that AirAsia is streamlining. Last August, the company announced it had executed an agreement to sell its entire 50% shareholding in Asia Aviation Centre of Excellence (AACE) to CAE International Holding Ltd (CAE, holder of the remaining 50%) for US$100 mil.

The transaction does not require shareholders’ approval but that of the Department of Civil Aviation, which it hopes to obtain by November.

AirAsia also revealed its digitisation plans to transform into a tech-savvy airline. According to a Kenanga research report, digitisation will increase profitability and bring operational costs down.

“Ultimately, they plan to use digitisation to increase profitability by driving revenue up and costs down. They plan to engage Artificial Intelligence (AI) and leverage on user data they have collected over the years for a multitude of applications,” says Kenanga. According to the research house, AI would be able to help pinpoint more profitable routes.

In addition, AirAsia has engaged big data specialists to leverage on its existing user data to increase marketing efficiency. It also plans to have Wi-Fi/Intranet made available in planes so that passengers can use smartphones to purchase in-flight entertainment packages.  

This article first appeared in Focus Malaysia Issue 255.