AirAsia Hits Turbulence: Budget airline faces allegations of corruption and bribery
February 27, 2020
2 min read
What's going on here?
Budget airline AirAsia has denied accusations that it accepted a $50m (£38m) bribe from European aircraft manufacturer Airbus in order to secure a contract for the sale of 180 planes.
What does this mean?
Airbus has agreed to pay £3bn in fines to the UK, US, and French authorities to settle their investigations into a string of bribes made to secure plane deals. The airline is under investigation by Malaysia’s Anti-Corruption Commission and the UK’s Serious Fraud Office (SFO). The investigations revealed Airbus’ $50m sponsorship of a Formula 1 team in which AirAsia executives Kamarudin Meranun and Tony Fernandes were shareholders. AirAsia has denied these allegations, insisting that all transactions with Airbus have been legitimate. Meranun and Fernandes have stepped down from their executive positions pending the outcome of the investigation.
The accusations initially caused AirAsia’s share price to fall by 11%. However, following a comment from Malaysia’s Prime Minister, Mahathir Mohamad, it rose by 8% in just a few hours. Mahathir argued that the sponsorship was not a bribe but an “offset” and questioned why we shouldn’t accept something to offset the cost of making a high-value purchase. He said, “it is normal to ask for an “offset” in business dealings provided the money is not taken for personal use”.
What's the big picture effect?
This story raises the question of whether a payment made in the course of securing a lucrative business deal constitutes bribery. While the sponsorship is a red flag for the SFO, Mahathir considers it a reasonable and legitimate offset. Diligent investigation remains essential to prevent exploitation of this grey area. The impact of Mahathir’s comments on AirAsia’s share price indicates the powerful influence of public figures, with digital media allowing their views to be instantly communicated to people around the world. This story also illustrates how companies that are perceived to be acting dishonestly can suffer damage to their reputation and profits. On the whole, it is unlikely that these allegations will be detrimental to AirAsia, but the incident serves as a reminder of the importance of good faith and integrity in business, especially given the previous bribery investigations of the industry in the past (for more information, see our article on that here).
Report written by Isobel Deane
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