AirAsia Consulting in early talks for SAL acquisition

“Currently, it is in the pre-qualification stage, and no purchase bid or cash was involved,” AirAsia Consulting CEO Subashini Silvadas said.

KUALA LUMPUR: AirAsia Consulting is planning further engagement with the International Finance Corp (IFC) which is mandated to advise the Sri Lanka government on the divestiture of SriLankan Airlines Ltd (SAL).

The consultancy was responding to news report on AirAsia being among six bidders for Sri Lanka’s state-run carrier SriLankan Airlines since the island nation was looking to reduce losses incurred by government-owned enterprises under a US$2.9bil International Monetary Fund programme.

The deadline for submissions was on Monday.

AirAsia Consulting chief executive officer Subashini Silvadas said as per the consultancy’s mandate, it was involved in the request for qualification process for SriLankan Airlines.

“Currently, it is in the pre-qualification stage, and no purchase bid or cash was involved,” she told Bernama.

If selected, she said that pre-qualified bidders will be given the opportunity to conduct due diligence on SriLankan Airlines.

“Nevertheless, we are bound by confidentiality obligations and unable to disclose specific details at this time,” she added.

Meanwhile, MIDF Research in a report said the bid by AirAsia’s parent, Capital A Bhd, to purchase shares in SAL could be part of its corporate strategy to enter emerging markets.

“We believe the group sees this acquisition as part of its corporate strategy, as it continually seeks opportunities to enter new markets with growing populations and rising middle-income groups.

“Management has previously hinted at the potential establishment of two more regional airlines in addition to its ventures in Cambodia,” MIDF Research said.

Through this acquisition, the research firm said the group can establish connections between major and secondary cities in India and various points in South-East Asia.

“However, further details on the potential acquisition are scarce at this juncture, with the process to review the proposals from the bidders expected to take about four months,” the research house added.

According to MIDF Research, an initial check revealed that SAL currently operates a fleet of 24 Airbus A320 and A330 aircraft, serving a network of 126 destinations across 61 countries.

However, it noted that the airline is facing challenges, with three aircraft grounded for over a year due to insufficient funds to cover mandatory engine overhauls.

SAL holds a dominant position at Bandaranaike International Airport, the primary international airport in Sri Lanka, commanding a 52% market share.

Before the pandemic, SAL transported about five million passengers and 100,000 tonnes of cargo, operating around 15,000 flights annually. Its major destinations, including Male, Chennai, London and Singapore, collectively accounted for 25% of the airline’s total seat capacity.

SAL was profitable until its management contract with Emirates abruptly ended in 2008, due to a disagreement with then-president Mahinda Rajapaksa.

MIDF Research said it was not making changes to its earnings estimates for Capital A.

“With the valuation aligning with its pre-pandemic historical mean, we are maintaining our ‘neutral’ call with an unchanged target price of RM0.74 based on eight times financial year 2024’s earnings per share.”

The primary catalyst for the stock remains the potential for a faster-than-expected restoration of network and seat capacity to pre-Covid levels. Meanwhile, a potential headwind could stem from geopolitical tensions in the Middle East, leading to elevated jet fuel prices, the research house said.

“We estimate that for every US$1 per barrel of crude oil increase in jet fuel price, our core net profit could decrease by RM41mil. Nonetheless, Capital A has been able to implement higher airfares, leveraging the constrained availability of aircraft among local airlines, while fuel surcharges remain in effect,” it noted.

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AirAsia , SriLankanAirlines , Divestiture , IFC , CapitalA


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