AirAsia in talks for over RM1b funding to stay afloat

by FARA AISYAH/ pic by ARIF KARTONO

AIRASIA Group Bhd is in talks to secure funds to stay afloat and is “confident” it can successfully continue doing business despite its external auditor’s concerns over the firm’s ability to remain operational amid the Covid-19 pandemic.

Group CEO Tan Sri Dr Tony Fernandes (picture) said the loss-making carrier has been presented with capital raising proposals, be it debt or equity, and is in ongoing discussions with “numerous parties” including investment banks, lenders and interested investors.

“We have received indications from certain financial institutions to support our request for funding, amounting to more than RM1 billion,” he said in a statement yesterday.

“Of this debt funding, a certain portion would be eligible for the government guarantee loan under the Danajamin Prihatin Guarantee Scheme in Malaysia.”

The group’s Philippine and Indonesia entities are also currently in various stages of bank loan applications, with the group having applied for the Philippines’ government guaranteed loan under the Philippine Economic Stimulus Act.

Internal cost-cutting efforts include a group-wide temporary salary reduction of between 15% and 75%. The company has received deferrals from its supportive lessors and is now working on further extensions.

“We have also restructured 70% of our fuel hedging contracts and are continuously negotiating with our supportive counterparties for the remaining exposure. All in all, we expect at least 50% reduction in our cash expenses in 2020,” Fernandes said.

On July 6, AirAsia said it recorded a net loss of RM803.85 million for the first quarter ended March 31, 2020 (1Q20) compared to a net profit of RM96.09 million it made for the same period last year.

The bulk of losses in 1Q20 was due to RM270.1 million of fair value losses on derivatives and RM110 million in loss settlement on fuel hedges gone wrong.

The company also provided for RM243 million in additional depreciation and lease liabilities interest on operating lease aircraft, including the additional sales and leaseback transactions completed in August 2019.

It had RM1.61 billion in cash and cash equivalents as at end-March 2020, down from RM2.59 billion at the start of the year.

A day after the 1Q20 results release, its external auditor Ernst & Young (EY) said the carrier’s 2019 RM283 million net loss, current liabilities exceeding current assets by RM1.84 billion, and pandemic impacted air travel demand “indicate existence of material uncertainties that may cast significant doubt on the group’s, and the company’s ability to continue as a going concern”.

AirAsia in a bourse filing on Wednesday stated that EY’s statement together with a decrease in shareholder equity had triggered the prescribed criteria of Practice Note 17 (PN17), a status which applies to financially distressed companies.

Yet, the firm will escape the PN17 classification, as Bursa Malaysia said in April that affected listed issuers that trigger PN17 criteria will be exempted from the status as part of pandemic relief measures.

AirAsia recorded a group-wide load factor of 60% in June, with its Malaysia operations’ load factor reaching 65%, Fernandes said in his statement yesterday. For July, the airline expects to achieve a load factor of 70%.

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