AirAsia sees early signs of recovery

  • Aviation
  • Friday, 10 Jul 2020

On debt funding, AirAsia CEO Tan Sri Tony Fernandes said: “A certain portion of debt would be eligible for the government guarantee loan under the Danajamin Prihatin Guarantee Scheme in Malaysia."

PETALING JAYA: AirAsia Group Bhd is sanguine that early signs of a recovery is on the horizon even as it secured the support of necessary stakeholders to ensure its survival.

“The board is confident of the successful continuation of the business, in conjunction with the actions undertaken by the governments of the operating entities, outcome of ongoing discussions with financial institutions and investors to obtain the required funding, and the implementation of management’s action plans in response to the conditions, ” AirAsia said in a statement.

The company said it received support from certain financial institutions for its funding request of more than RM1bil.

The airline’s shares had notably seen big moves after concerns were raised by its external auditors Messrs Ernst & Young PLT that had issued an unqualified audit opinion on the company’s audited financial statements for the financial year ended Dec 31,2019.

Following this key development, AirAsia saw its shares falling 15 sen to 70.5 sen on Wednesday, a day after the airline announced this, but recovered ground yesterday by adding 4.5 sen to 75 sen at its close.

TA Securities analyst Tan Kam Meng told StarBiz he believed the company would not have issues in securing the necessary funds as a short-term cushion for its operations.

“But there are many parts to this fund raising and they will need both equity and debt funds. On the equity side, a potential private placement that was reported in June and a rights issue will be an easy one.

“This will be quick cash and I believe the shareholders will approve it. They can possibly get an estimated combined RM1bil-RM2bil from equity fund raising alone, ” Tan said.

StarBiz reported a month ago, quoting sources, that AirAsia was in talks to sell 10% of its shares to South Korea’s third-largest conglomerate SK Corp through a private placement of new AirAsia shares at RM1 each.

“I am looking at how Cathay Pacific did it recently, the government may have to step in here (more directly) as well. AirAsia may also issue debt that would be bought by the government but the government may need to raise funds for this purpose if it is so, ” Tan added.

On debt funding, AirAsia CEO Tan Sri Tony Fernandes said: “A certain portion of debt would be eligible for the government guarantee loan under the Danajamin Prihatin Guarantee Scheme in Malaysia.

“Other than Malaysia, our Philippine and Indonesia entities are currently in various stages of bank loan applications. In the Philippines, we have applied for the government guaranteed loan under the Philippine Economic Stimulus Act, with an expected positive outcome, ” Fernandes said in the statement.

CGS-CIMB said that by taking AirAsia’s assurances at face value, it is reasonably confident the airline would survive the challenges brought about by Covid-19.

“The new RM1bil loan to Malaysia AirAsia (MAA), possible new loans to Indonesia AirAsia and Philippine AirAsia and potential RM1.4bil new equity issue by the group, will bring the total capital raising close to the RM3bil which we estimate is needed to keep it afloat, ” CGS-CIMB said in a report.

“If Danajamin is willing to guarantee 80% of a new RM1bil loan to MAA, as we expect, it is very likely to be able to secure the loan at reasonable terms, especially since MAA does not have many assets left to collateralise, having already sold almost all its planes to aircraft lessors, ” CGS-CIMB added.

CGS-CIMB has a reduce rating and target price of 58 sen on AirAsia.

AirAsia said it is closely monitoring and is also reaching out externally for assistance to ensure its working capital remained intact.

“Internally, we have embarked on headcount rationalisation for leaner operations, given the current demand for air travel and expectations on recovery. Internal cost-cutting efforts include a group-wide temporary salary reduction of 15% to 75%, ” Fernandes said.

“We have received deferrals from our supportive lessors and are now working on further extensions. We have also restructured 70% of our fuel hedging contracts and are continuously negotiating with our supportive counterparties for the remaining exposure.”

Fernandes said he expected a reduction in its cash expenses of at least 50% this year.

Meanwhile, AirAsia noted some positive developments in the air travel scene and said that countries worldwide have resumed domestic travel.

“They are gradually reopening international borders in recognition that air transport provides the connectivity that is essential for the resumption of economic activities, ” Fernandes said.

“The formation and discussion of ‘travel bubbles’ and ‘green lanes’ with key economic partners with a low infection rate and proven pandemic curbing systems is a step in the right direction.”

He also said the company had been aggressive and had launched large-scale promotions and sales campaigns in recent times and this had generated higher-than-anticipated sales.

“On July 7, we registered our highest post-hibernation sale with 75,000 seats sold in a single day, reflecting pent-up demand and signalling the green shoots of recovery. We also sold over 200,000 AirAsia Unlimited Passes since its recent launch for domestic Malaysia, domestic Thailand and AirAsia X, ” Fernandes said.

He said there were positive trends in flight booking statistics and load factors, which potentially signalled a better second half of the year.

“In June, our group-wide load factor was 60%, with MAA’s load factor reaching 65%. For July, we expect to achieve a higher load factor of 70% despite tripling our capacity month-on-month to cater to the increased demand, ” Fernandes said.

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