RM454m may not be enough for AirAsia

The proposed capital raising is very small and likely to help the budget airline go for 2 to 3 months only, says analyst


AIRASIA Group Bhd will need to raise more than RM454.51 million via a private placement the airline proposed to keep afloat amid the Covid-19 pandemic.

An analyst said the proposed capital raising is very small and likely to help the budget airline go for two to three months only.

“The sum is very small. They will need more than that. In the January-September period last year, their cash pile declined by about RM2 billion according to financial reports.

“From that, a simple calculation may indicate that RM454 million will roughly be used up in two to three months,” the analyst, who preferred anonymity, told The Malaysian Reserve (TMR).

The analyst said one of the main utilisations of the capital is to pay salary.

In a recent Bursa Malaysia filing, AirAsia said the company proposed to undertake a private placement of up to 20% of the total number of issued shares. The 20% placement entails an issuance of up to some 668 million shares in addition to the existing 3.34 billion shares issued as at Jan 18, 2021.

The company said the exercise would enhance its financial position with a marginal increase in net assets and improvement in net gearing.

It added that gross proceeds would be used for fuel hedging settlement, aircraft lease and maintenance payments and general working-capital expenses, among others.

“The private placement is proposed in response to a series of unexpected events outside the group’s control, primarily attributed to the outbreak of the global Covid-19 pandemic which has created significant challenges for the airline industry.

“Travel restrictions imposed by various governments have led to significantly reduced inbound and outbound passenger traffic for the

group, and uncertainty over the group’s future prospects and operations,” it said.

Another analyst said AirAsia has many loans or other forms of capital infusions proposals in the works for many months, but it appears that nothing has been executed.

“They are all relatively small amounts given the extent of the crisis. AirAsia needs capital badly and a lot more than RM450 million.

“This would just be a start and small step, if it succeeds, in providing the liquidity they need to weather this storm,” the analyst, also asked not to be named, told TMR.

In a recent report by AmInvestment Bank Bhd, it said the proceeds will increase AirAsia’s gross cash balance of RM618 million as at Sept 30, 2020, to RM1.1 billion.

However, factoring in the cash burn since Sept 30, 2020, the report said the number will be significantly lower.

“We are only mildly positive on the latest move by AirAsia. We see it as a stop-gap measure to bring itself from the brink.

“Depending on how soon Malaysia and the world at large are to emerge from the pandemic, AirAsia may need to raise more fresh capital, including potentially a debt-to-equity swap for creditors (which is also highly dilutive to its existing shareholders) to ensure its long- term survival,” the report said.

It added that there is an urgent need for airlines, including AirAsia, to recapitalise their balance sheets.

For AirAsia, the report said the process has just begun.

TMR reported that local airlines, which have been badly hit by the impact of the Covid-19 pandemic since last year, are expected to plummet even deeper as domestic travel comes to a grinding halt with the implementation of Movement Control Order (MCO) 2.0.

Sobie Aviation Pte Ltd analyst and consultant Brendan Sobie said the outlook for the first half of 2021 (1H21) is rather dismal.

It is expected to be worse than 2H20, but still better than the second quarter of 2020 (2Q20).

He said MCO 2.0 could drive traffic down to as little as 2% like what happened in April last year, or perhaps between a paltry 4% and 5%.

Last year, domestic traffic was at about 2% of normal levels in April. It partially recovered after the initial MCO was lifted, and peaked at about 40% of normal levels in September.

Sobie said domestic traffic in 4Q20 was the worst due to cases surging to four digits, but traffic was improving in December until towards the end of the month when it started declining again.

International Air Transport Association chief economist Brian Pearce said global airlines are expected to continue to burn cash until 3Q21 before transitioning to cash generation towards the end of the year.

Cash burn is expected to continue in 1H21 at between US$20 billion (RM80.9 billion) and US$30 billion.