Tuesday, July 21, 2020

Fernandes vows to keep AirAsia flying

External auditors for AirAsia Group Bhd revealed last week the dire state of the low-cost carrier’s finances when they flagged that in 2019, before the Covid-19 pandemic took hold, AirAsia already had a negative working capital as its current liabilities exceeded its current assets by RM1.84 billion.

In AirAsia’s audited annual accounts for the financial year ended Dec 31, 2019 (FY2019), Ernst & Young (EY) cast doubt over the carrier’s ability to continue as a going concern in view of the current economic condition and the pandemic. The financials also revealed that the carrier booked a net loss of RM283.22 million compared with a net profit of RM1.7 billion in FY2018.

EY’s warning came as AirAsia reported its biggest ever quarterly net loss of RM803.85 million on revenue of RM2.31 billion for the first quarter ended March 31, 2020 (1QFY2020), owing to fewer passengers carried and fuel hedging losses. As a consequence, the carrier’s net current liabilities widened to RM3.57 billion as at end-March 2020 from RM1.84 billion as at end-December 2019. But the worst is not over. Analysts are expecting the 2QFY2020 results to be worse given the almost zero revenues as AirAsia’s planes were largely grounded by the pandemic during the period.

Its net cash position had also halved to RM1.04 billion as at end-March 2020 from RM2.1 billion as at end-2019. CGS-CIMB Research analyst Raymond Yap estimates that AirAsia needs RM3 billion in new funding to maintain a healthy cash position. The race to raise funds has never been more urgent.

Since then, AirAsia co-founder and group CEO Tan Sri Tony Fernandes has moved swiftly to assuage investors’ concerns over the carrier’s cash flow and negative working capital, saying that it is raising additional cash to help keep itself afloat through a combination of debt and equity financing. The flamboyant entrepreneur was reported by Nikkei Asian Review as saying that the carrier was looking to raise up to RM2 billion of additional funds in the next six months and return to profitability by 2021.

AirAsia, in its FY2019 financial statement, says negotiations are underway with financial institutions in Malaysia for loans of up to RM1 billion, of which 80% may be guaranteed by Danajamin Nasional Bhd, CGS-CIMB Research’s Yap estimates.

It is also depending on its subsidiaries in the Philippines and Indonesia to do their part to help shore up funding. Last Thursday, India’s Business Standard reported that Indian conglomerate Tata Sons was in talks to buy out AirAsia’s 49% stake in AirAsia India at a steep discount.

A check with CTOS data shows that AirAsia Bhd, AirAsia’s airline operation arm, has loans with RHB Bank Bhd, Wilmington Trust SP Services (Dublin) Ltd and M&T Aviation Finance (Ireland) Ltd, among others, that had not been settled as at July 7.
21/07/20 Kang Siew Li/The Edge Markets
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