AirAsia buying 49% of Zest Air

MANILA, Philippines (2^nd UPDATE) – The Philippine unit of Malaysia’s AirAsia is taking a significant stake in low-cost carrier Zest Air through a share swap deal with the group of former ambassador and juice drink magnate Alfredo Yao.

The parties entered into a “strategic alliance agreement” Monday, March 11, where Yao would sell 49% of Zest Airways Inc. to Philippines AirAsia, allowing the latter to fly out of the nation’s capital.

In exchange, Yao will get 15% of Philippines AirAsia, said the airline’s CEO Marianne Hontiveros. Currently, AirAsia Group CEO Tony Fernandes owns 40% of the carrier; and Filipino shareholders Hontiveros, Antonio “Tony Boy” Cojuangco Jr. and Michael Romero each own 20%.

“All the Filipino shareholders will end up with 15% each [of Philippines AirAsia after the transaction],” said Hontiveros.

This means Filipino shareholders, Yao included, will get a total of 60% stake in the airline. Under the Philippine Constitution, foreigners can own only up to 40% of companies in real estate, utilities and transportation.

“The agreement contemplates various regulatory approvals to be obtained prior to completion of the transaction,” a statement released by Philippines AirAsia read.

The deal is positive for both groups—it will allow AirAsia to fly out of Manila and grow market share, and give Zest Air the support it needs for expansion. Prior to the deal, Zest Air was in talks with several groups that were interested in taking a stake in the company to help it compete in the low-cost carrier sector.

“The Filipino market is very small compared to what it should be. We should be looking at a bigger market. The inbound tourism is almost 10 times the size so we’re not talking about existing market. This partnership is about growing the market,” said Fernandes.

The deal also comes as the aviation sector prepares for the lifting of the ban imposed by the US and Europe on Philippine airlines due to safety concerns.

“With the imminent lifting of Category 2 the potential grows dramatically with the prosperity in the Philippines and many people wanting to come here. The Category 2 affected us dramatically. We’re predominantly an international aircraft not having access. But that will change now,” said Fernandes.

Bigger market shares

Philippines AirAsia CEO Marianne Hontiveros said the investment in Zest Air complements their growth strategy.

AirAsia operates out of Clark airport in Pampanga, while Zest Air operates out of the congested Ninoy Aquino International Airport (NAIA), the Philippines’ main international gateway.

“This will allow us to leverage on our respective strengths, which in the case of Zest Air, include its operations out of NAIA, which constitutes a majority of the air traffic in the Philippines and a strong domestic network which feeds into its current international routes,” Hontiveros said.

Yao shares the same objective. “Our investment [will] quickly increase our fleet and expand Zest Air’s market share.”

Hontiveros said they are looking to attract the growing returning OFW market based in central and northern Luzon.

“There is tremendous potential out there that both our companies will exploit. OFWs have more money to travel back and majority are from central and northern Luzon. I don’t think it is overcrowded I think there is tremendous potential which is why we struck up this alliance,” said Hontiveros.

She also said they are looking at new destinations in Korea that were previously closed to them. “We’re a point-to-point service and will use the airbus A320 so we’re looking at destinations within or under 4 hours. These are all forward plans we need to work out.”

Zest Air has a network of close to 30 domestic and 10 international destinations, including cities in South Korea, China, Taiwan and Malaysia. The airline is one of several businesses owned by the Yao family; the family is also engaged in banking, food and beverage manufacturing, pharmaceutical distribution and real estate development.

AirAsia Group is the largest low-cost carrier in the region, with operations in 18 countries. It has a fleet of over 120 aircraft and an additional 350 about to be delivered.

In the Philippines, its unit operates flights between Clark and other domestic points like Davao, Puerto Princesa and Kalibo. International destinations include Hong Kong, Macau and Kuala Lumpur. – with reports from Aya Lowe/Rappler.com