Friday, April 3, 2009

AirAsia: 'Consolidated' results previously hard to follow

For some companies, the basis of 'consolidation' in their consolidated results is very important.

Was looking at AirAsia, came across a series of posts from regarding that the way AirAsia consolidates its results. AirAsia consists of:
  • Air Asia Berhad (AAB) - the main entity which the financial results are for. Carries out Malaysia operations, and owns 49% percent of its two associated companies below.
  • Air Asia Thailand (AAT)
  • Air Asia Indonesia (AAI)
  • Other subsiduaries (eg: Culinary services and Hong Kong) not relevant to this topic.
In essence, the consolidated results account for AAI and AAT using the equity method: which generally limits the recognition of losses to the sum invested. So AAT's and AAI's losses are no longer recognised.

This makes it more difficult to track AA's performance. In 2006 and 2007, we would have had to consolidate the results our self to take into account losses of the two entities.

Big lesson here: For 'investment holding companies' or companies that hold many subsidiaries/associates (especially less than 50%), check for unrecognized losses due to the 'Equity Method'.

Fortunately this does not affect AA much in 2008. From their 4Q08 interim results (not the annual report), footnote 17 says that both AAI and AAT are both operational profitable, after excluding the one-off massive losses taken for unwinding fuel and swap contracts.

More abt AA later.

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