Analysts see AirAsia surviving current challenges

AirAsia needs to raise close to RM2 billion (S$652 million) over the next year to turn its fortunes around, a target that group chief executive Tony Fernandes is confident of reaching. He says the airline has been working on finding investors and rai
AirAsia needs to raise close to RM2 billion (S$652 million) over the next year to turn its fortunes around, a target that group chief executive Tony Fernandes is confident of reaching. He says the airline has been working on finding investors and raising funds since March, that it is in the process of raising debt and equity and that its cash flow is still very strong.PHOTO: AGENCE FRANCE-PRESSE

Malaysia's biggest airline AirAsia should be able to weather its current financial difficulties, say analysts.

Auditors have warned that its future is in "significant doubt", with flights largely crippled by the Covid-19 pandemic.

AirAsia - which also operates in five other Asian countries and has been voted the top low-cost airline in the world 11 times - has admitted that it is facing its biggest challenge in 19 years since group chief executive Tony Fernandes bought the company for a nominal sum of RM1.

The company needs to raise close to RM2 billion (S$652 million) over the next year to turn its fortunes around, a target Mr Fernandes is confident of reaching.

In a report last week, Affin Hwang Capital analyst Isaac Chow said that he expects AirAsia to continue running its business as a going concern, with a boost to liquidity from new loans and the raising of equity.

"Nonetheless, the business environment remains very challenging and we expect AirAsia to continue reporting losses in the coming quarters," the report said.

CSG CIMB analyst Raymond Yap was also "reasonably confident" that the carrier would survive the Covid-19 pandemic.

"Taking AirAsia's assurances at face value, we are reasonably confident that the carrier will survive Covid-19," Mr Yap said last week.

He said that a potential RM1 billion loan to its local operations, other loans to its other Asian operations, and an equity issue will be able to raise close to RM3 billion needed to keep the airline afloat.

An unqualified audit opinion statement by Ernst & Young last week said that the carrier's liabilities exceeded its assets by RM1.84 billion. The audit opinion came days after the airline announced a record quarterly loss of RM803.8 million following the grounding of most of its fleet in March.

AirAsia shares plunged 18 per cent following the audit statement, and the airline subsequently said that the share plunge triggered the requisites for a Practice Note 17 (PN17), which applies to financially distressed companies on the Malaysian stock exchange. But the carrier will not be classified as a PN17 company because of the government's ongoing relief measures over the pandemic.

 
 
 
 

Mr Fernandes says the company continues to have strong cash flow.

AirAsia had a net cash position of RM2.1 billion at the end of 2019, despite posting a RM286 million loss for the same year.

The airline, which posted a RM1.7 billion profit at the end of 2018, said that the loss was partly due to accounting treatment after it restructured its aircraft ownership - changing from owning to leasing its aircraft, and other measures following its adoption of the Malaysian Financial Reporting Standards (MFRS) 16.

But a cash burn rate of RM120 million monthly - mostly due to the grounding of its fleet - led to the company seeking to raise funds even before the auditor's statement.

"I won't run a company based on an audit report," Mr Fernandes said during an interview with business radio station BFM last week. "We have been working on this (finding investors and raising funds) since March. We are in the process of raising debt and equity. Our cash flow is still very strong."

Aviation analyst Shukor Yusof from Endau Analytics last week also said that he believes that the airline will weather the crisis.

"I see them being able to overcome this. There is a fair chance of them obtaining the funds," Mr Shukor said during an interview with BFM, pointing to the airline's importance to the Malaysian economy and its market leader position in South-east Asia.

Last month, South Korea's third biggest conglomerate SK Group said that it is considering taking a 10 per cent stake in the airline, which will raise RM334.2 million.

The airline has said that it plans to raise RM1 billion from financial institutions and RM1.4 billion more via equities.

A version of this article appeared in the print edition of The Straits Times on July 16, 2020, with the headline 'Analysts see AirAsia surviving current challenges'. Print Edition | Subscribe