PETALING JAYA: AirAsia Group Bhd, which is disposing of 25 aircraft to US-based global private investment firm Castlelake LP, intends to use the proceeds of the sale to ramp up its digital business and reward shareholders.
AirAsia Group chief executive officer Tan Sri Tony Fernandes said the disposal would provide the low-cost carrier with more cash at its disposal.
“Selling our aircraft monetises all our aircraft at high prices and avoids residual risk and allows us to return cash to shareholders and invest in our new digital business,” he said via Twitter following the company’s EGM yesterday.
On Dec 24, 2018, AirAsia announced that it was disposing of 25 aircraft to Castlelake LP in a deal worth US$768mil (RM3.22bil).
Castlelake LP will also purchase four new aircraft that will be delivered to AirAsia in 2019. The 29 planes – Airbus’ A320-200ceo and A320neo – will be leased back to AirAsia.
Later that month, AirAsia’s indirect wholly-owned subsidiary, Asia Aviation Capital Ltd (AACL), entered into a share purchase agreement with Castlelake’s indirect entities for the disposal of its entire equity interest in Merah Aviation Asset Holding Ltd – which owns the aircraft.
The proposed disposal is expected to reduce AirAsia’s gross gearing ratio from 0.53 times to 0.24 times.
Separately, Fernandes said the impact of the MFRS 16 accounting standard on AirAsia is “not very material.”
“Even with that standard and if you use profit and loss for analysis, the impact of the new standard MFRS 16 is about RM35mil a year,” he said via Twitter.
The MFRS 16 is a new accounting standard for leases that took effect this year.
CGSCIMB in a report earlier this month said the new accounting standard would result in higher gearing levels for AirAsia.
The research house noted that AirAsia had sold 79 aircraft to lessor BBAM Ltd Partnership in 2018 and is expected to sell a further 25 planes to lessor Castlelake LP by the third quarter of this year.
Together with the other existing operating lease aircraft, CGSCIMB said AirAsia is expected to capitalise RM11.8bil worth of borrowings related to the operating leases in 2019, effectively bringing back to the balance sheet what had previously been off-balance sheet.
“The impact would be to raise reported gross gearing of 19% in 2018 to 198% on a pro forma basis after MFRS 16.
“The overall impact to profit and loss earnings from the above sale and leasebacks is negative because AirAsia would have to pay for the lessors’ profit margin as well as provide for a higher level of maintenance charges based on lessors’ conditions for lease returns, which tend to be strict.
“The net result would be a squeeze on AirAsia’s profit margins.”
Meanwhile, AllianceDBS Research said AirAsia’s outlook remains steady as market leader in the industry with 41.7% market share.
“Expansion plans are under way with 18 new aircraft for 2019. Available seat kilometres (ASK) is expected to grow at 9.8% and revenue passenger kilometres at 10.1% backed by load factors of 84.7%. Subdued fuel prices would help support earnings,” it said.