Don’t be fooled by AirAsia’s fancy marketing; we think it’s close to default. We estimate that it has managed to inflate profits by 39% over the past five years through related party transactions with associates. Today, these associates have not only stopped paying their bills but require AirAsia’s financial support. The company is basically creating profits and flattering its operating cash flow by abusing its associates. Real profits have collapsed and AirAsia now needs a recapitalisation that will dilute existing shareholders by more than 100%. We see at least 42% downside with fair value less than MYR1.23/share. Sell or Short. AirAsia may be a new dog, so to speak, but it’s playing a very old trick.