QPR: An airline disaster?

AirAsia is a fragile ‘ship’ and Queens Park Rangers can sink with it. George Turner from Tax Justice Network writes about the Premier League club.

QPR: An airline disaster?
Photo: All Over Press

A story in last week’s Financial Times piqued our interest. Indonesia, Asia’s largest economy, has told AirAsia that they have four weeks to raise more equity or their licence to operate in the country may be at risk.
Why is this important to a West London football club as Queens Park Rangers? Because QPR owe vast amounts of money to companies related to AirAsia.
According to QPR Holdings 2014 accounts the holding company for the club owes over 100 million pounds to Tune QPR Bhd. Tune QPR is owned by Kamarudin bin Meranun and Tony Fernandez who between them control 40 per cent of the shares in AirAsia.
In addition AirAsia provides about 1.5 million pounds a year in sponsorship to the club according to the company’s annual accounts.
What does an equity injection mean? Broadly, there are two ways of financing a company, loans or equity. Equity is the owners’ own money, it is a more secure form of funding because it doesn’t have to be paid back in the event the company stops making money. Loans on the other hand can be called in by creditors and often have to be paid regardless of the profitability of a company.
AirAsia’s Indonesian subsidiary has more loans than the combined value of assets held by the owners. This means that if the company were to close tomorrow, and they sold off all the planes and other assets owned by the company, they still would not be able to pay off their debts.


Indonesia’s airline regulators don’t like having companies financed in this way, because highly indebted companies have less room for manoeuvre in their finances. This may encourage cutting back on maintenance and other essentials. They want the company to increase the amount of finance they receive from equity and drop some of the loans. Tony Fernandez has told the regulators that the company is taking steps to secure more funding.
The finer details of Asian airline regulation aside, what is really worrying is that there are some who are speculating that AirAsia’s backers won’t be able to stump up the cash required. A note from HSBC quoted in the FT said:
“We not only view AirAsia’s recent updates on funding plans for associates with scepticism, but also argue claims of improving prospects are unvalidated”
Last month, a research firm, GMT, accused AirAsia of inflating profits though abusing their subsidiaries. With the subsidiaries now in trouble the company it said was teetering on the verge of bankruptcy. As a result the AirAsia share price fell by 6 per cent.

A sinking ship

All of this is worrying stuff for QPR. If AirAsia really is a fragile as its critics say, and the company collapses, the club may well find itself lashed to a sinking ship. And that never ends well. Just ask fans of Hearts.
The 2014 annual accounts of QPR holdings showed that the company has debts of almost 200 million pounds and makes revenues of a little under 40 million pounds. It is spending more than 1 million pound than it earns a week. Last year the creditors wrote off 60 million pounds so that on paper the club only lost 10 million pounds, but this was an exceptional one off event.


In relative terms, this puts it in a worse financial position than Greece. If the owners of QPR were to get into financial difficulty, then it will be difficult to see how they could keep the money taps flowing. The club might face a severe shortage of cash and find it difficult to pay its bills without making serious cuts in expenditure and selling players. Eventually the club might have to find a new owner, but not before a lot of damage had been done.
The situation that QPR finds itself in is one of the major themes of the Offshore Game report. So often we see rich backers come to football clubs and promise fans the world. They say they will put in tens if not hundreds of millions into the club in order to take them to glory. But that money is not invested in the club but loaned to it, putting the club at serious risk if things go wrong. To make things worse those loans are from anonymous offshore companies so we know little about the financial health of the entities behind the deals. How much capital does Tune QPR Bhd have to cushion any blow?
Fans of QPR may want to put 31 July, the deadline that has been given to AirAsia by the regulators, in the diary.

George Turner/The Offshore Game/Tax Justice Network

George Turner/The Offshore Game/Tax Justice Network

This article is by George Turner/The Offshore Game/Tax Justice Network