AirAsia needs funding fast

Extra gearing: CGS-CIMB Research forecasts AirAsia to raise an additional RM1bil in debt funding this year and RM600mil in the next two years.

PETALING JAYA: Low cost carrier AirAsia Group Bhd is in need of an urgent intervention to save itself.

The airline requires new funding and it needs it fast, because its current cash balance would only last it for around five months, said a research report.

The group has a cash balance of around RM2.6bil as at end-2019 and CGS-CIMB Research estimated its monthly cash burn rate to be RM527mil.

Besides the short-term working capital facilities of up to RM400mil that AirAsia can tap into, it was also looking to the government to give a guarantee for a loan it hoped to secure from local commercial banks at low interest rates.

The research house forecast that AirAsia would raise an additional RM1bil in debt funding this year and RM600mil in the next two years to tide through bruising losses and cash burn.

“At this moment, a rights issue is not on the table but this is a potential downside risk in the future.

“AirAsia is renegotiating aircraft operating lease payments and fuel hedging losses with a view to defer those payments.

“Although AirAsia is not government owned, we believe the government will not allow it to fail as it will hurt Malaysia’s economy, ” CGS-CIMB said in a research note yesterday, adding that it was still waiting for concrete government action to assist the aviation industry.

The airline’s current cash balance is inclusive of RM1.2bil of sales in advance of carriage.

Assuming that 20% of the sales in advance is refunded due to AirAsia’s many flight cancellations, the remaining cash balance would be RM2.4bil.

Up to 96% of AirAsia’s aircraft were already grounded in Malaysia, Thailand, Indonesia, the Philippines and India due to the various international and domestic travel restrictions.

The group has responded by cutting the fixed salaries of its senior management staff since March.

Beginning April, staff with salaries of more than RM4,000 a month have been asked to take voluntary pay cuts of between 15% and 100% depending on seniority and salary levels.

Only executive chairman Datuk Kamarudin Meranun and chief executive officer Tan Sri Tony Fernandes, the two main shareholders, have taken 100% pay cuts.

CGS-CIMB said this may not be enough to see AirAsia through the coronavirus disease (Covid-19) pandemic.

All these salary cuts are indefinite in nature but assuming an average of 20% fixed salary cut, CGS-CIMB said this will amount to savings of RM300mil in financial year 2020 (FY20) on an annualised basis.

“Assuming that AirAsia successfully reduces or defers the remaining fixed costs by 20%, this will amount to additional savings of RM400mil in FY20, ” it said.

The estimated burn rate of RM527mil per month comprises RM192mil in fixed cash operating costs after assuming a 32% cut, RM258mil for operating lease instalments and financing expenses and RM77mil of fuel hedging losses, using US$35 per barrel as the average spot price for Brent crude oil for the rest of the year.

Should Brent crude oil prices remain stuck at US$35 per barrel, AirAsia is looking at fuel hedging losses of US$159mil from 2Q20 to 4Q20.

Meanwhile, AirAsia is talking to its ICT vendors for deferral of payments and is trying to negotiate lower fees.

It is also asking various government and airport authorities for waivers of parking and station charges. The government had offered a 15% parking discount but it wanted a total waiver.

The research house also pointed out that AirAsia’s associate company Thai AirAsia has cash on hand and current investments of 4 billion baht (RM530.74mil), unutilised revolving credit facilities with banks, the ability to raise more secured debts using unencumbered aircraft and can also sell and leaseback 11 more planes which remain on its balance sheet.AirAsia’s share price closed 0.5 sen higher yesterday at 81.5 sen after 28.65 million shares were traded.

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