AirAsia X owners have strong position in restructuring talks


AIRASIA X Bhd’s (AAX) major shareholders like AirAsia Group Bhd (AAB) led by CEO Tan Sri Dr Tony Fernandes have the upper hand over lessors in the restructuring negotiations of the group simply due to the scale of its operations and the market conditions now.

Winair AS founder and aviation consultant Hans Jørgen Elnæs said the AirAsia group could, from a strategic point, be too big to fail for Airbus SE, which is one of its largest creditors, as the airplane maker is at risk of losing about US$5 billion (RM20.2 billion) of aircraft orders under AAX’s restructuring plan.

The media reported in Decem- ber that Airbus had already built or substantially built seven A330neos for AAX and another 71 of the wide-bodies on order, according to a court filing.

These aircraft have been ordered but not yet delivered and account for a large portion of AAX’s total liabilities, and in which a case of AAX defaulting, would not be favourable to creditors like Airbus. AAX was reported to have failed to pay US$301.2 million (RM1.22 billion) in pre-delivery payments for its A330neo orders plus US$2.5 million on A321XLR narrow-body jets.

“I would say Fernandes has the upper hand, provided that he and AAX come up with a sustainable restructuring plan and solid financing that is not driving the cost base upwards.

“In my opinion, AAX should be downsized 30% to 50% to meet the drop in demand in the next few years and to cut its pre-Covid-19 cost base by at least 30%,” Elnæs told The Malaysian Reserve (TMR).

The downsizing, he added, would enable AAX to be highly competitive and supportive as Malaysia Airlines Bhd (MAB) is also downsizing, thus resulting in more balanced seat capacity to/ from and within Malaysia.

“My bet is both AAX and MAB will stay in the air, but significantly downsized and cost-efficient,” he added.

An analyst also shared a similar view that AAX has more leverage in its restructuring saying its creditors will likely be worse off if AAX goes into liquidation.

“They may end up getting nothing. So, a haircut is necessary to keep AAX afloat,” the analyst, who asked not to be named, told TMR.

The analyst said, at this rate, 2021 will still be a challenging year for the industry.

AAB holds a direct 13.76% stake in AAX, while Tune Group Sdn Bhd (TGSB) held a direct 17.83% stake as at June 30, 2020.

Fernandes owns direct and indirect stakes of 2.69% and 31.59% respectively in AAX, and is a non-independent and non-ED in the cash-strapped, low-cost carrier.

The indirect 31.59% shareholding in AAX is by virtue of his shareholding of more than 20% in AAB and TGSB.

Fernandes recently said in an interview with CNN that the group is not cancelling any Airbus orders at present. AAX is seeking to restructure about RM64 billion of debt and liabilities.

Its accrued debt amounts to RM2.24 billion, without taking into consideration contingent debts such as its large aircraft orderbook with Airbus.

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.

TMR reported that 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.

Elnæs previously said the Airbus A330, which is the workhorse of AAX, is very attractive to be converted into a cargo aircraft compared to the Boeing 787.

He said 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$10 million to US$15 million per unit.