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SATS, AirAsia ink ground-handling pact

SINGAPORE'S SATS and Malaysia's low-cost carrier AirAsia have inked a strategic pact to grow ground handling across the Asean region that will see the two firms owning an interest in each other's ground-handling units.

Under a share swop agreement, SATS will acquire a 50 per cent stake in AirAsia's Ground Team Red Holdings (GTRH) in exchange for SATS' 80 per cent stake in SATS Ground Services Singapore (SGSS) - a new ground-handling entity formed to serve customers at Changi Airport's new Terminal 4 - along with S$119.3 million in cash, said SATS in an announcement to the Singapore Exchange. Changi's Terminal 4, which started operating on Tuesday, will cater to nine carriers, including four from the AirAsia group.

GTRH will be renamed SATS Ground Team Red Holdings, which will be the 50:50 joint investment (JV) vehicle of AirAsia and SATS that will hold stakes in both its Malaysia and Singapore subsidiaries - Ground Team Red Sdn Bhd (GTR) and SGSS respectively. AirAsia will effectively own 51 per cent of GTR and 40 per cent of SGSS while SATS will effectively own 49 per cent of GTR and 60 per cent of SGSS.

Both companies will be responsible for growing the ground-handling business in their respective markets and will explore expansion into Indonesia, the Philippines and Thailand in the near future, they said in a joint announcement on Monday.

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The new partnership will give SATS, which already owns a 4 per cent stake in the largest flight caterer in Malaysia, Brahim's SATS Investment Holdings Sdn Bhd, access to the Malaysian ground-handling market, said SATS. AirAsia has ground-handling operations at 15 airports in Malaysia, which would be a new ground-handling market for SATS.

SATS president and chief executive Alex Hungate said that the expanding fleet size with 41 per cent of the demand for new aircraft over the next 20 years coming from the Asia-Pacific represented a huge opportunity for SATS, hence it was happy to partner AirAsia in the JV.

The partnership with SATS will foster greater efficiency and cost savings to AirAsia's ground-handling operations, said AirAsia in a filing to the Malaysian stock exchange. "This will facilitate growth of AirAsia, with SATS bringing in the necessary expertise and skills set to create a synergy which will enhance the ground-handling business," it added.

At a media briefing on Tuesday morning, AirAsia chief Tony Fernandes emphasised his bullish outlook for the Asean aviation market.

"I think air travel is going to grow, especially in secondary and tertiary cities," said Mr Fernandes. "Now you're getting more point to point flights, that's where this joint venture will benefit tremendously."

The Malaysian-listed carrier said that it expects the transactions to result in a disposal gain of RM365.7 million (S$118 million) in the fourth quarter of FY2017. Cash balance will increase by RM372.2 million following the sale, it added.

Both companies said that the agreements are subject to the fulfilment of certain conditions precedent.

SATS rose three Singapore cents or 0.6 per cent to close at S$4.69 on Monday while AirAsia, listed on Bursa Malaysia, slipped two sen or 0.6 per cent to RM3.18.