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On behalf of the Board of Directors of AirAsia (“Board”), RHB Sakura Merchant Bankers Berhad is pleased to announce that in connection with the rationalisation of domestic routes for air services in Malaysia (“Rationalisation”), AirAsia has on 31 July 2006 entered into the MOU with FAX.

FAX, a company incorporated in Malaysia as a private limited company under the Companies Act, 1965, on 19 May 2006, has been set up with the intention to operate the new airline to provide rural air services in Sabah and Sarawak (“Interior Services”), previously known as the MAS Rural Air Services. The current shareholders of FAX are Anthony Francis Fernandes, Kamarudin bin Meranun and Raja Mohd Azmi Raja Razali.

The MOU generally sets forth the understanding of both AirAsia and FAX to undertake the provision of the Interior Services for the Government of Malaysia, the final terms and conditions of operations of which shall be set out in a formal contract to be executed between the relevant parties in due course. Nevertheless, pending the finalisation and formalisation of such contract, the broad parameters governing the Interior Services for the duration of the MOU are as set out below:

(a) FAX shall provide and undertake all flight operations in relation to the Interior Services from 1 August 2006, using turbo-prop aircraft to be leased from the Government of Malaysia.

(b) AirAsia shall provide and/or cause to be provided in relation to the Interior Services all support services and resources including but not limited to route and strategic planning, general airline advisory and compliance, accounting, recruitment, staff deployment, sales and marketing, systems related resources (automated and otherwise) and ground handling;

(c) The remuneration of AirAsia and FAX shall be mutually agreed upon in good faith between AirAsia and FAX, having regard to the 3 factors as follows:

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  (i) the amount of the financial assistance to be provided by the Government of Malaysia for the Interior Services;
  
  (ii) revenue from operations; and
  
  (iii) AirAsia and FAX’s operational costs for providing the services outlined in sections (a) and (b) above.

Further, AirAsia and FAX have also agreed that FAX’s business plan and operations now and going forward, shall not envisage competition with the core business of AirAsia as presently carried out.

The MOU shall terminate upon the earliest of:

(a) The execution of a formal contract in respect of the terms of operations of the Interior Services;

(b) Any party failing to rectify the breach of any term or failure to perform any obligation or undertaking contained in the MOU within 14 days or receipt of a notice of such breach, failure or non-performance from the other; or

(c) The expiry of 3 months from any written notice given by either party to the other to terminate the MOU.

Under the Rationalisation, all flight operations in relation to the Interior Services from 1 August 2006 are required to use turbo-prop aircraft that are to be leased from the Government of Malaysia and/or otherwise. The Board (save for the below interested directors) is of the view that it will not be in the best interest of AirAsia to undertake the Interior Services by itself, as the business of turbo-prop aircraft does not form part of AirAsia’s existing business model and strategies moving forward. The MOU is to facilitate AirAsia’s commitment to the Government of Malaysia under the Rationalisation to commence or caused to be commenced the Interior Services from 1 August 2006.

Anthony Francis Fernandes and Kamarudin bin Meranun are directors and major shareholders of the Company. Based on the foregoing, Anthony Francis Fernandes and Kamarudin bin Meranun are deemed interested in the MOU. Anthony Francis Fernandes and Kamarudin bin Meranun have abstained and will continue to abstain from all Board deliberations in respect of the MOU.

The interested directors’ and interested major shareholders’ direct and indirect shareholdings in AirAsia as at 21 July 2006 are as set out in the table below.

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  	Direct		Indirect
  	No. of Shares	%	No. of Shares	%
  Anthony Francis Fernandes	2,627,010	0.11	880,683,2471	37.53
  Kamarudin bin Meranun	100,000	*	880,683,2471	37.53

Notes:

* Negligible
1. Deemed interested by virtue of Section 6A of the Companies Act, 1965, through a shareholding of more than 15% in Tune Air Sdn Bhd

Save as disclosed above, no other directors and/or major shareholders of AirAsia and/or persons connected with them have any interest, whether directly or indirectly, in the MOU.

Save for the above interested directors, the Board having considered all the relevant factors in respect of the MOU is of the opinion that the MOU is in the best interest of AirAsia.

This announcement is dated 31 July 2006.

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