AirAsia gets $1.4b offer for leasing company

Mr Fernandes says there is "tremendous value and cash equation" in AirAsia's leasing business.
Mr Fernandes says there is "tremendous value and cash equation" in AirAsia's leasing business. PHOTO: BLOOMBERG

Surge in regional business leads to more carriers opting to lease instead of buy planes

KUALA LUMPUR • AirAsia, the region's biggest discount carrier, has received an offer of about US$1 billion (S$1.38 billion) to buy its aircraft-leasing company amid a surge in the business on the continent. The carrier's shares rose yesterday to their highest level in more than a year.

The airline intends to divest the business at some point, group chief executive officer Tony Fernandes told Bloomberg Television in an interview.

The offer for Asia Aviation Capital, the leasing company that is fully owned by AirAsia, needs to be discussed further with the board, Mr Fernandes said, declining to offer further details. "We actually had an offer to buy it and I think this is a very powerful cash generator," he said. "At some point, we will divest in this asset. There's tremendous value and cash equation there."

As airlines serving the Asian-Pacific region move to triple their fleet, they are finding it can be cheaper to lease jets instead of buying them from Boeing or Airbus. The leasing business can be more lucrative than running an airline, which has prompted conglomerates led by Hong Kong billionaires Li Ka Shing and Cheng Yu Tung to enter the industry.

Mr Fernandes' comments come as Asia's biggest lessor, BOC Aviation, is slated to start trading in Hong Kong tomorrow after an HK$8.7 billion (S$1.5 billion) initial public offering.

AirAsia shares yesterday gained 0.4 per cent to RM2.41 after rising as much as 4.2 per cent earlier in the day to the highest level in more than a year. The shares have risen 87 per cent this year, helped by the carrier's surge in profits.

"It was interesting that we haven't even gone to the market and someone approached us on it, because obviously we have some very valuable assets in our A320s and a very strong order book," Mr Fernandes said.

AirAsia, one of the biggest customers of Airbus' single-aisle A320 jets, started the leasing company in 2014. It made its first deal outside the group by leasing out aircraft to Pakistan International Airlines, Mr Fernandes said, adding that more carriers are trying to rent its planes.

Mr Mohshin Aziz, an analyst at Malayan Banking, said: "AirAsia doesn't need to sell the leasing arm now because its balance sheet is all right and it will get cash infusion from founding shareholders."

"As a business, you want to have many avenues and the leasing arm opens an avenue for AirAsia, should it need to raise cash."

AirAsia operated 171 A320s in its fleet at the end of March. Its medium and long-haul budget carrier, AirAsia X, had 29 A330s. Asia Aviation Capital will only manage those aircraft leased to affiliates outside Malaysia, including Thai AirAsia, Indonesia AirAsia and AirAsia India, according to filings in 2014.

Airlines in Asia will fly more than 16,000 planes within 20 years, almost tripling the current number, according to estimates by Boeing.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 31, 2016, with the headline 'AirAsia gets $1.4b offer for leasing company'. Print Edition | Subscribe