PETALING JAYA: AirAsia Group Bhd’s latest funding saga has drawn varied responses, with some opining that government intervention could be justified on the basis that the airline is “too big to fail”, while others express concern whether government help will entail sufficient strict conditions to ensure the survival of the airline.
Last week, reports quoting sources said AirAsia was looking to secure a government guarantee for a massive fundraising exercise to save the financially-strapped airline.
AirAsia has since confirmed the process of raising funds totalling some US$1bil from international debt markets plus RM700mil in local credit facilities, but did not comment on the involvement of the Malaysian government in the exercise.
Sources contacted by StarBiz said the government’s role could come in the form of a government guarantee for a big chunk of the total funds to be raised, and that Putrajaya has insisted on having two board seats on AirAsia as part of the conditions for its help.
The low-cost carrier may need closer to US$3bil, one senior aviation analyst said, as “the company needs to be restructured and recapitalised”. He said it would be “very difficult” for AirAsia to secure the needed funding under the current structure. While it may be possible to do so under a government guarantee, the analyst cautioned that the government should be wary of offering one, given the high risk.
“Government support of AirAsia is justified as it plays a critical role in the economy as Malaysia’s largest airline, but the support provided has to be done on a sensible basis that provides a feasible pathway for the return of government money and maintains a level playing field,” he said.
Reports citing sources said AirAsia had approached several industry players and financial investors, including at least one Asia-Pacific airline, for a US$1bil equity financing last year, but failed to clinch a deal.
“The US$1bil would not address the
-term issues of the company. There have been many examples of people looking at AirAsia and then deciding against investing following due diligence. If investors who have looked at AirAsia have concluded that it is too risky, why should the government put taxpayers’ money at such high risk? As such, it would be better to undertake a proper restructuring, resolve the longer-term issues and then find investors who would be more willing to invest,” the analyst told StarBiz.
Another seasoned aviation consultant said it would actually be difficult to determine a specific funding requirement or assess whether the proposed amount is sufficient. He added that from an industry perspective, funding adequacy depends on factors such as the maturity profile of debt, lease-payment obligations, expected operating cash flow and the purpose of new financing.
For the second quarter ended June 30, 2026 (2Q26), AirAsia’s net loss widened to RM527.16mil from RM154.9mil in the preceding quarter. The airline generated negative operating cash flow of RM582mil in the first half of 2026 (1H26). As at June 30, 2026, it had RM954mil in cash against RM18.4bil in current liabilities, and carries RM3.13bil in borrowings and RM13.3bil in lease liabilities.
According to the senior aviation analyst, who spoke on the condition of anonymity, AirAsia’s results announcements are unaudited and have often been revised by more than 10% after the audit. He also pointed out that the company raised RM1bil in new equity from a recently concluded private placement. The newly proposed debt financing would suggest a debt-to-equity ratio ratio of roughly 4.7 times, much higher than the roughly one times debt-to-equity ratio at which top Asian carriers operate.
The government was previously open to backing AirAsia financially, although such support came with conditions.
In 2021, AirAsia’s then-parent Capital A secured approval for a government-guaranteed loan of up to RM500mil, with the government guaranteeing 80% of the facility. The loan was intended to support working capital needs following the pandemic, but was eventually abandoned after the founders, Tan Sri Tony Fernandes and Datuk Kamarudin Meranun, were required to provide personal guarantees.
Frost & Sullivan principal consultant and aerospace lead Shantanu Gangakhedkar said the fundraising deal is important for AirAsia, particularly in providing greater financial flexibility and supporting its refinancing efforts. However, the longer-term impact will depend on the final structure and terms of the financing, as well as the airline’s financial and operational performance.
“AirAsia is strategically important to Malaysia and regional connectivity, but that does not mean it is insulated from broader industry financial or operational pressures,” he said.
The case for government support may go beyond AirAsia’s financial position. Its status as a major employer, the tourism factor in which the airline’s low-cost flights play an important role in drawing tourists to the country and at the same time, supporting passenger traffic.
Should Air Asia collapse, other airlines may eventually come in to fill the void, but they may not be able to match AirAsia’s massive passenger throughput. Hence, its exit could see Kuala Lumpur International Airport lose its position as a major regional and international aviation hub.
Undoubtedly, any government-backed financing would be expected to come with safeguards including defining the use of proceeds, regular financial reporting and performance-based milestones. The proposed two board seats also give the government greater oversight over AirAsia’s strategic direction.
Khair Mirza, head of airport investor resource and industry research at Canadian transport infrastructure consultancy Modalis Infrastructure Partners, said government support for airlines in other countries showed two common threads – support offered to all airlines preserve a level playing field, and that state-owned, rather than private carriers, tend to receive longer and more sustainable support.
“This can be seen in Canada and India where their governments offered loans of up to seven years to support all airlines. Meanwhile, in Singapore and Indonesia, the government has injected fresh equity into state-owned airlines to keep them flying,” he said.
India introduced its latest airline support scheme this year, allowing eligible scheduled passenger airlines to access additional credit backed by a 90% government guarantee, with loans carrying a seven-year tenor and a two-year moratorium, to ease liquidity pressures amid higher fuel costs and operational disruptions.
