Air Arabia versus Flydubai
and Abraaj — June 2019
Air Arabia’s record of profitably since its inception 16 years ago was shattered in 2018 when it reported a net loss of AED 579m (US$156m). However, the cause of this loss was a one-off write-off of its investment in Abraaj Group, a private equity fund, totalling AED1.1bn ($300m).
Air Arabia is a conservative company, making this write-off even more unusual. But until last year the Dubai- based Abraaj Group appeared to be a leading private equity fund, specialising in health care, clean energy and transport (indeed, it was an early investor in Air Arabia, as well as in Nasair in Saudi Arabia). Its collapse was a major shock with creditors now owed at least $1bn. Disturbingly, accountants PwC’s preliminary investigation found that Abraaj’s revenues hadn’t covered its operating costs for years, and investors’ funds were being used to fill that gap rather than for investment. Another Big 4 auditor, KPMG, had signed off on Abraaj’s accounts for the entire period that this activity was taking place — a sadly familiar story. Now Air Arabia, and many others, are suing the Abraaj founder, Arif Naqvi, in the hope that if any funds are recovered, which is very uncertain, Air Arabia will be able to write them back into its accounts as exceptional profit.……