Flying High, My Story Page 8

  So I said, ‘Why don’t we ask Pahamin to be our chairman?’

  He was the only person we knew and, as it happened, probably a good fit. The others thought I was mad – not for the first time – but we had nothing to lose.

  As soon as we raised the idea, Pahamin agreed without hesitation, only asking us what we needed. He was one of the few that didn’t laugh in our faces. We said the most pressing problem he could help with was to get us in to see Prime Minister Mahathir bin Mohamad. We knew this was a big ask, as the two didn’t exactly see eye to eye; they had very different views on how to implement democracy and how civil servants should work. But Pahamin agreed to try.

  True to his word, Pahamin somehow got us an appointment with the Prime Minister in July 2001. It was our only shot at getting this low-cost, short-haul airline off the ground.

  The meeting was set for 11.00 a.m. at the Prime Minister’s office in the government district of Putrajaya – about twenty-five miles outside Kuala Lumpur. The building, Perdana Putra, is one of the most imposing buildings in Malaysia – a huge six-storey complex which has two wings attached to an impressive central structure, topped off by an onion-shaped glazed mosaic main dome, a replica of Masjid Zahir in Alor Setar, Kedah. The main dome is surrounded by four smaller domes. It’s a place built to make you feel small.

  I turned up at 6.00 a.m. having not slept a wink. The main gates were still locked, so I simply sat down on the steps and waited. There was so much riding on this meeting, and the fact that the Prime Minister wasn’t a big fan of Pahamin played on my mind. The PM had been in office since 1981; he knew everyone and everything. If he agreed to grant us an airline licence, my – our – dream could move a big step forward; if he refused, it was dead in the water. I was terrified. Conor had already flown back to Ireland as his work was pretty much done, while Din had gone to Australia, so it was just me, Aziz, Pahamin and our financial controller, Cheah.

  I finally got into the building at about 8.30 after some official or other had taken pity on me. I think the official might have recognized me from my Warner days because he asked, ‘Why are you here? Have you come to speak to him about music piracy?’

  ‘No’, I replied. ‘I want to start an airline.’

  He laughed at me but I was more than used to it by then. Aziz turned up, and the official continued, ‘But it’s a bad day to see him. He’s going to be in a bad mood. He’s seeing the leader of the opposition first thing.’

  My heart sank a little further – it wasn’t like we could reschedule but the odds were stacking up against us. I remained optimistic as I knew we had a good plan to present.

  Pahamin had arrived and we could see he was talking to some pretty serious-looking people in black suits. Aziz and I walked over to them. Pahamin’s face didn’t radiate happiness.

  ‘You won’t believe it. The next people in to see the PM after the opposition are Malaysia Airlines. They’re going to be talking about their MYR [Malaysian ringgit] eight billion restructuring. I don’t think he’ll be very interested in granting a licence to a new airline if the national carrier is failing so badly.’

  My heart sank further still. I was wondering if I should start applying to PricewaterhouseCoopers for an accounting job. The chances of the PM granting a low-cost airline licence to a group of aviation outsiders were slim if he was in a happy mood; if he was already carrying bad feelings from the two previous meetings, we were toast.

  Our turn for an audience finally arrived. The walk to his office door seemed to take for ever; and, once we were inside, I felt like a five-year-old in the headmaster’s study. Overwhelmed by the size and power of the office and the man, I was terrified.

  ‘Make it fast, I’m sick,’ he snapped.

  So, a meeting with the opposition, Malaysia Airlines and now, third problem, he was sick. Again, thoughts of PricewaterhouseCoopers sprang into my mind.

  I’m a great believer in the idea that nothing is ever wasted. Before the meeting, I’d bought a copy of my final album at Warner – the live concert featuring the PM’s own pet project, the Malaysian Philharmonic Orchestra.

  ‘Before we start, Prime Minister,’ I said, barely able to keep the tremble out of my voice, ‘can I give you this? It was the last album I made at Warner.’

  The mood softened, but I still had to give the presentation. It was met with silence. The only reaction I got from him was the occasional scowl and a wry smile when I said I was going to take on and destroy Singapore Airlines (SIA). When I finished my presentation, the room was once again silent. Finally the Prime Minister spoke: ‘I like this model. I like you guys. I think you’re going to succeed. And you’re going to succeed because you have passion and you’re not from the airline business.’

  It helped that the Prime Minister knew his stuff when it came to airlines. Having visited Ryanair to see how they’d compete with the more established Aer Lingus, he told us that he’d advised Malaysia Airlines to create a low-cost airline – which they had never done.

  ‘If you’re good I’ll give you all of Malaysia Airlines’ domestic routes. You have my blessing.’ For half a second, I felt on top of the world. Ecstatic and relieved.

  ‘But,’ the Prime Minister uttered and my heart sank yet again, ‘you’ve got to buy an airline. I won’t give you a licence to create a new one because I’ve had too many failed airlines.’

  We were back to square one and came out of the meeting with a black cloud over our heads. How were we going to find and buy an existing airline? Forever the optimist, I said: ‘Well, we’ve got to try and find one.’ We had come too far to give it all up now.

  Over the next few days we shopped around for airlines to buy. Aziz and I approached an airline called Pelangi Air but when we went to see them they said, ‘Give us $40 million and we’ll turn the airline round for you.’

  We looked at the books and it was a joke – only God could have turned that company round.

  We politely declined.

  A few weeks later, and no further forward, I went to play golf. While I was on the green, I saw the corporate communications director of DRB-HICOM – one of Malaysia’s leading manufacturers. I knew they owned a tiny airline called AirAsia but, to be completely honest, I didn’t really know what it was, where it flew to or anything concrete about it at all. It was so insignificant that, even as desperate as we were, it hadn’t appeared on our list of potential airlines to buy. Still, I went up to him and said, ‘Hey, I hear you have an airline.’

  ‘Yeah,’ he scoffed. ‘Wanna buy it?’

  ‘Yes,’ I said confidently.

  ‘You can have it tomorrow,’ he replied. ‘We don’t need it.’

  I went home that night and frantically tried to learn more about AirAsia. Din and I made enquiries and found out that it had a few domestic routes, two 737-300s and about 200 staff. It had been set up in the mid nineties by Tan Sri Yahaya Ahmad, the founder of DRB-HICOM, with the aim of becoming the second largest carrier, after MAS (Malaysian Airline System), in Malaysia. Tragically, he died in 1997 and with him went the dream of creating an airline. AirAsia had been nothing but a burden on DRB’s books ever since. So by 2001 it had amassed MYR 40 million debt and was going nowhere.

  For Din and me it was a lifeline. We went to see the deputy CEO of DRB the next day and he was happy to do a deal, to say the least.

  ‘You can have the airline tomorrow. How much do you want to pay for it?’

  ‘One ringgit?’ I asked, tongue in cheek, as that was the equivalent of about fifty US cents.

  ‘You can have the airline for one ringgit provided you remove our corporate guarantee from GECAS,’ the deputy CEO offered.

  I immediately thought, ‘Damn,’ as I should have got them to pay me for it.

  So AirAsia – a tiny, unknown and unloved airline – was ours for the taking if we could persuade GECAS to release DRB-HICOM from an important financial constraint.

  A corporate guarantee is an instrument that is provided by a parent company whe
n one of its smaller subsidiaries enters into a long-term agreement with a third party. In this case, DRB-HICOM guaranteed payment of the leases for the aircraft for as long as the lease was in place. So, we needed to get GECAS’s approval for the acquisition because they needed the guarantee that the leases for the two planes that AirAsia operated would be paid. Of course, DRB-HICOM wanted to sell the company but didn’t want to continue to provide the guarantee – they wanted to walk clean away from the airline.

  It wasn’t a done deal. GECAS had entered into the leases for the planes because DRB-HICOM owned the airline. Why would they be sympathetic to our plan? We had no experience in the airline industry and no money. On paper, it wasn’t a great offer.

  I was put in touch with Mike Jones at GECAS to whom I said, ‘Look, I studied Portfolio Risk Management at university, if you treat me as every other credit applicant, then of course I’m not going to qualify and you’ll turn me down. Fair enough. But if I make this airline work, I’m going to be a massive customer. I might be leasing or buying 1,000 engines from you. Go on, take a risk, it’s two planes out of your 2,000. AirAsia isn’t growing now – you’ll get the money for the remainder of the contract but you won’t make any more money. Go on, take a leap of faith, give up the guarantee.’

  I’m not sure he entirely believed that I could turn AirAsia round but perhaps he saw the same passion in me as the Prime Minister had.

  He gave me approval to go to GE Capital in Fairchild, Connecticut, to make the same presentation to the main board, warning me that I should not turn up in my normal scruffy outfit. I bought myself a serious suit and prepared thoroughly for the meeting. When I walked into the boardroom I saw that everyone else was in jeans, of course. I did the presentation again, tackled the same objections, made the same points as I had to Mike. As a sweetener, we agreed that we’d give them first refusal on providing the next five planes we’d lease so it would be an ongoing relationship. Eventually they agreed.

  The corporate guarantee was removed; we could go ahead and buy AirAsia for MYR 1.

  However, every time it looked like we were headed into calmer waters, another wave of problems hit us. On 8 September 2001, the night before we were due to sign, we were suddenly told there was one other AirAsia shareholder, a company called Mofaz. And they refused to sell – they were being cute by appealing to the Prime Minister to stop us. The decision was due the following morning and it was on a knife edge. Once again our futures seemed to be in the PM’s hands.

  I couldn’t sleep that night. We had an airline within our grasp but it was quite possible that we could lose it. After an agonizing wait, the PM denied Mofaz’s request and we were allowed to proceed. I don’t know why and I don’t care to dwell on it, but the stress of those few months was unbelievable. We signed on 9 September 2001, subject to due diligence.

  The due diligence was necessary because Din and I were applying for mortgages on our houses to get some cash – it really was all or nothing. DRB-HICOM could have held out for the due diligence to be approved but they allowed us to run the airline for three months while they paid the costs and the due diligence was completed.

  At the last minute they said they wanted to keep a 10 per cent stake in the business, but Din was smart and refused. I had been quite happy to give it to them but he realized that it meant we wouldn’t be fully autonomous. That’s why we work so well together – he sees things that I don’t (and vice versa).

  AirAsia had MYR 40 million ($20 million) debt when we took it on and was, I was told, losing around MYR 4 million a month. As part of the deal, DRB-HICOM took on half of that and we shouldered the other half. The three main debtors were MAS, Petronas and Malaysian Airports; I went to each of them and promised that we’d pay up on time. It was a point of principle to make sure our suppliers trusted and respected us. It paid dividends because we reduced the interest rate on the debts as a result.

  Now we had an airline and three months’ grace to start to turn things around. It was an amazing feeling after months of stress. We had worked unbelievably hard figuring out how a whole industry functioned, modelling a new way of operating a business and overcoming what seemed like – and still seems like – impossible odds. We drew a short breath before throwing ourselves back into the action.

  Only two days after we signed the contract, I was watching the Malaysian football team lose to Laos when my phone started pinging with texts. The messages carried news that I simply couldn’t believe. I drove home and turned on Bloomberg News just as the Twin Towers collapsed. Time stood still. It was surreal. I sat there trying to process all the thoughts and emotions this barbaric act had stirred in me. I watched people jumping out of windows, an image previously unthinkable and one not easily forgotten. My heart broke for all the people involved in the tragedy: those suffering inside the tower and the families whose lives would now be shattered.

  My thoughts also turned to the aviation industry and whether our brand-new airline was going to survive the troubles ahead. Traumatized as I and the whole world were, we had the opportunity to start something new, and I strongly believed that people would still want to fly. It’s incredibly difficult to carry on in the face of such tragedy but I never doubted for a second that we would.

  After the initial shock of 9/11 subsided, Din rang me and asked: ‘Shall we still do this?’

  ‘Yeah, we’ve got so far,’ I answered. ‘Someone must be on our side; it looks really, really bad but people still have to fly to Penang. Let’s do it. Almost even more so now, we’ve got to make sure people can fly.’

  We had set out with a dream of giving everyone the chance to fly, and that’s what we still had to do. I felt that I owed it to the people who worked at AirAsia and to our future passengers to show up to work as usual. The model we had been implementing would enrich people’s lives. I had to focus on that.

  The short-term economics were horrible in every conceivable way: the price of oil was going through the roof and passenger confidence was shaken. In every sense, starting an airline at this moment in history seemed like the most foolish business idea ever. But I knew we had to do it.

  So we went ahead.

  Four days after 9/11, we got our first piece of good news. GECAS approached us with a proposal.

  We had been going to swap AirAsia’s existing two 737-300s for 737-200s because the 300s were too expensive for us to run. The 200s were smaller and older, and our pilots were freaking out in anticipation, because some of the controls were still hydraulic dials rather than digital.

  Ray from GECAS said, ‘Look, lease rates have collapsed because of 9/11. I’ll cut you a deal. Keep the 737-300s and we’ll halve the rate.’

  That changed the numbers for us dramatically: our revenues went up because the 300s carried about twenty extra seats, and the costs were reduced because they were more efficient and powerful, meaning that fuel costs and flight times were reduced. Conor McCarthy and I messaged each other, concluding that ‘there really is a God’. Ryanair had started with 200s so I had assumed that we were fine following their lead, but keeping the 300s was a game-changer. GECAS and AirAsia have worked brilliantly together ever since.

  We had aeroplanes (registrations 9M-AAA and 9M-AAB), we had a licence, we had staff and we had even inherited some routes. This was all very well, but we still needed money to run the airline. Between the four of us we simply didn’t have the cash. Din and I were trying to remortgage our houses to have something to put in. We’d forecast that we’d need MYR 20 million to get the business running, so while I had been off negotiating with GECAS, Din had secured the money through a financier. I hadn’t met him but he believed in the idea and had committed to the money. He would, once the deal was signed, be our partner, owning 50 per cent of the company. Not ideal but we had no other option. I went off to his office in Kuala Lumpur to meet him and present what we had done, who we’d hired, the business plan, and to brief him on the initial discussions with GECAS about the planes.

  About halfway
through the conversation, he raised his hand to stop me. He asked me, ‘Why have you done all this without letting me know? I’m your partner.’

  I reacted in my normal candid way: ‘Well, you haven’t signed anything yet, or given us any money, so you’re not a partner yet.’

  I didn’t mean to upset him or piss him off. It was absolutely true. But I could have been a little less direct, I suppose, because he didn’t react well at all. It was my first experience of successful, wealthy businessmen and the way they expect to be treated. Sometimes their ego gets the better of them and they don’t like it when you challenge or upset the way they expect things to be done.

  He thought I was being flippant; whereas in my mind, I was just stating a fact – I’m a black and white person, which can get me into trouble. As I’ve grown older I’ve grown a bit wiser but I’ve upset a lot of people along the way. In fact, recently a friend texted me an observation about my relationships in business: ‘You can educate but also provoke: you have a talent for that …’

  My openness and directness had led me into trouble again. But as a leader I think it’s much better than hedging and making people second-guess. You need to lead through clarity, not manipulation.

  When I left that meeting, I called Din and said, ‘I think I may have messed up the 20 million.’

  So we were back to having no money to run the airline. When he heard about it, to his eternal credit, Pahamin didn’t lay into me or rant and rave, he just said, ‘Tony, given the way you like to do things, it might be for the best. I can’t imagine you and Din running every decision past someone else. It just won’t work.’

  Din and I agreed that we’d just have to run it on the cash we took in. If we wanted to operate a low-cost airline we’d have to practise what we preached and strip away every frill. We’d need to survive hand to mouth.

  Like I said, nothing was easy.