AAX’s lessors have options in restructuring plan

A boon in the air freight market due to Covid makes the Airbus A330 very attractive to be converted into a cargo aircraft


AIRASIA X Bhd’s (AAX) lessors will still have favourable options for the leased aircraft if they decide to walk away from the restructuring negotiation and foreclose on their properties.

Winair AS founder and aviation consultant Hans Jørgen Elnæs said the Airbus A330, which is in the workhorse of AAX’s fleet, is very attractive to be converted into a cargo aircraft compared to the Boeing 787.

He said the main advantage of the A330 is, it does not have any engine issues like Boeing 787 that is plagued by its Rolls-Royce Holdings plc’s Trent 1000 engine.

With the Covid-19 pandemic providing a boon to the air freight market, he said lessors could consider not to go with airlines’ restructuring plan, and instead take back their assets to put them into the second-hand market.

“The A330 is very attractive to be converted into cargo aircraft. The world needs it now and major logistic companies are looking for it.

“For airlines, it does not matter if they lose some of the aircraft because they will be smaller anyway post-Covid-19. But, the question is whether lessors would pursue legal proceedings to claim any losses when the lease contract is terminated and repossess their assets,” Elnæs told The Malaysian Reserve (TMR).

He added that lessors who are more positive towards airlines restructuring proposals may not have any plan to lease or sell their assets to other parties, and hence agree to the plans as the best solution.

Some airlines may be interested to get aircraft from the second-hand market and reconfigure the setting to their own, but this involves a high cost of around US$10million (RM40.5 million)-US$15 million per unit.

Pangolin Investment Management Pte Ltd director Mohshin Aziz said the consensus among lessors and airlines is that both parties are on agreeable terms as long as the aircraft is being utilised and taken care of.

“The more practicable option in the industry is for lessors to reach a compromise and let airlines use the aircraft no matter how little they do. The cost for lessors to take back the assets is higher and uncertain because the market has far more aircraft than it needs. The surplus would increase,” Mohshin told TMR.

He said about 5,000 aircraft are in storage worldwide with a rigorous maintenance schedule at a high cost, according to Cirium data.

He further said about 60% of the global aircraft fleet are actively flying, 20% in storage and the other 20% are “neither here nor there”, pending to be used or not.

“The bigger picture tells you that it is better to work on a compromise with airlines than playing hardball in the current situation,” he said.

Reuters recently reported that most of AAX’s lessors supported a restructuring plan and the airline has received interest from potential investors for fundraising after reorganisation, court documents showed.

In emails attached to the court filings, supportive lessors said they wanted to continue discussions with the financially troubled budget airline and potential new investors, seeking more equitable terms and new commercial arrangements.

The affidavits come after more than a dozen creditors filed to intervene with AAX’s proposed court-supervised restructuring, with lessor BOC Aviation Ltd and airport operator Malaysia Airports Holdings Bhd arguing that AAX is “hopelessly insolvent”.

Airframe maker Airbus SE filed an affidavit last month saying it could lose more than US$5 billion worth of aircraft orders if the low-cost, long-haul carrier proceeded with the plan.

AAX is seeking to restructure RM64.15 billion of debt. Its accrued debt amounts to RM2.24 billion, without taking into consideration contingent debts such as its large aircraft orderbook with Airbus.

Some lessors have argued that the Airbus orders should be excluded. However, AAX said the contingent debts must be dealt with and will be reduced by the re-negotiated leases and other commercial contracts, Reuters reported.

AAX estimated lessors who continue with the airline post-restructuring would be able to recover 44% to 66% of their lease rental loss under new agreements.