A large portion of the loan is earmarked for its B2B e-commerce platform, leaving minimal funds to cater to its main airline business

by RAHIMI YUNUS / pic by TMR FILE

LOW-COST carrier AirAsia Group Bhd’s core business remains in a dire state despite securing a RM300 million loan from Sabah Development Bank Bhd (SDB), said MIDF Amanah Investment Bank Bhd (MIDF Research) in a research note.

The research firm added that a large portion of the loan was earmarked for its business-to-business (B2B) e-commerce platform, leaving minimal funds to cater to its main airline business.

AirAsia is expected to use the fund to grow Ourfarm, the company’s B2B agriculture e-commerce platform.

“We believe AirAsia will be able to utilise the fresh fund to benefit its business and grow Ourfarm. However, to address the elephant in the room, AirAsia is first and foremost an airline company before anything else. The core business is still in dire state as passenger traffics remain minimal amid worsening pandemic,” the investment bank said in a report yesterday.

MIDF Research noted that the staying power of the group was tested months ago when countries enforced lockdowns to contain the spread of Covid-19 virus across borders that severed AirAsia’s airline business.

It viewed that new funds designated specifically for AirAsia’s aviation business are needed to help the company stay afloat.

Last week, the budget carrier confirmed that a RM300 million loan from SDB has been approved and disbursed to companies under the group as part of the fundraising exercise undertaken by the company, according to an exchange filing.

The loan will be utilised to fund specific development projects as agreed by both parties, namely RM170 million to establish and operate Ourfarm digital food supply chain and cold chain facilities in Sabah; RM110 million to part-finance the project to turn Kota Kinabalu International Airport into an international hub for AirAsia’s operations; RM10 million to enhance e-commerce platforms and marketability of Sabah products; and RM10 million to further promote Sabah tourism destinations on airasia.com, the digital super app of AirAsia.

“This loan is in line with AirAsia’s pivot into the digital business. The main purpose of the loan is to enhance logistics in Sabah by increasing its supply chain and connectivity, creating over 100,000 new jobs in the process,” AirAsia stated in the announcement.

MIDF Research said Ourfarm is still at a very early stage of its business cycle, and the initiative will take a couple of years to bear fruit, hence it is still premature to estimate any earnings contribution from the segment.

It said AirAsia will continue to operate in a challenging environment amid persistent pandemic development, border control and other measures that remain unconducive for the airline business.

The group has ceased AirAsia Japan Co Ltd’s operations early this month to reduce its cash burn of the associate airline and the group.

AirAsia X Bhd (AAX), the group’s long-haul arm, was said to need up to RM500 million to jumpstart the airline, said deputy chairman Datuk Lim Kian Onn in a recent interview with The Star newspaper.

“We have run out of money. Whether this money comes from existing shareholders or new shareholders or from banks, we need capital. Obviously, banks will not finance the company without shareholders, both old and new, putting in fresh equity. So, a prerequisite is fresh equity,” Lim said in the interview.

Earlier this month, AAX announced in a bourse filing that it proposed to restructure RM63.5 billion in debts.