AAX secures major investment, explores restructuring

The fresh influx of funds not only provides a lifeline to the beleaguered airline but also fuels a renewed sense of optimism 

by RUPINDER SINGH / pics source: newsroom.airasia.com

AIRASIA X Bhd (AAX), the long-haul affiliate of low-cost carrier AirAsia, is re-emerging from the turbulent skies and is seeking to land safely on the path to recovery. 

The airline, which faced unprecedented challenges in the wake of the Covid-19 pandemic, has recently managed to secure a substantial investment as it attempts to reclaim its former glory. 

The aviation industry has undoubtedly suffered a severe blow over the past couple of years, grappling with travel restrictions, plummeting passenger demand and financial turbulence. As a result, many airlines found themselves teetering on the brink of collapse. 

However, AAX’s recent corporate exercise promises a much-needed respite. Leading the charge in AAX’s revival is a significant investment injection. 

On May 22, AAX announced its intention to place out 32.26 million new shares, equivalent to 7.78% of its total issued shares, to AHAM Asset Management Bhd, AIIMAN Asset Management Sdn Bhd and Lavin Group Sdn Bhd at an issue price of RM1.55 per share. This works out to a total of RM50 million. 

The subscription price represents a discount of 15.96 sen or 9.34% to the five-day volume weighted average market price (VWAP) of AAX shares of RM1.7096 per share on May 19, AAX told Bursa Malaysia in its filing. 

However, the pricing of the private placement at RM1.55 per share stirred a negative reaction in the market the following day. Shares of AAX fell as much as 5.7% to its intraday low of RM1.81 in early trade on May 23 after the medium-haul low-cost airline said it had priced its private placement at RM1.55 per share. At close, shares of the airline eased slightly to RM1.90, down two sen or 1.04%, with 13.72 million shares changing hands. The stock closed at RM1.92 on May 22 — its highest close in more than five years. 

Benyamin highlights the significant progress made since regional borders reopening, emphasising the company’s commitment to meeting the increasing demand for air travel

Fresh Injection 

Nevertheless, the fresh influx of funds not only provides a lifeline to the beleaguered airline but also fuels a renewed sense of optimism. 

The proposed placement represents a well-timed and strategic opportunity for the company to secure funds, primarily aimed at reactivating and maintaining its fleet. 

As AAX assesses its operational and financial performance, along with the feasibility of its Practice Note 17/2005 (PN17) regularisation plan, the funds raised through the proposed placement will serve as a temporary measure to support its immediate working capital needs. 

These funds, according to AAX, will play a crucial role in facilitating its ongoing recovery and expansion efforts during this post-pandemic era. 

Between 2020 and 2022, AAX faced significant financial challenges due to the global pandemic and its impact on the aviation industry. 

The company implemented various measures to address its financial concerns, including a debt restructuring scheme and a series of corporate restructuring and cost containment exercises. 

With the gradual reopening of regional borders and the easing of travel restrictions since early 2022, AAX seized the opportunity to scale up its operations. The company gradually resumed its flight services and experienced a steady increase in demand for international air travel. 

As a result, AAX achieved a turnaround in its financial performance, registering two consecutive quarters of profit for the financial periods ended Sept 30, 2022, and Dec 31, 2022. 

Building on this positive momentum, AAX recognises the need to raise additional funds to support its growth plans and ensure the continued reactivation and maintenance of its fleet. 

The proposed placement marks the company’s first equity fundraising exercise since 2015. 

The funds raised will primarily be allocated to the reactivation and maintenance of the company’s fleet, which is vital for expanding its flight operations and meeting the growing demand for international air travel. 

Growth Plan 

AAX CEO Benyamin Ismail expressed his optimism about the company’s growth trajectory. He highlighted the significant progress made since the reopening of regional borders, emphasising the company’s commitment to meeting the increasing demand for air travel across the regions it serves. 

As of May 2023, AAX boasts a fleet of 17 aircrafts, with 11 already activated and operational. Benyamin said the company aims to activate more aircraft and further expand its operations by year-end. 

While AAX continues to evaluate its operational and financial performance, as well as the viability of its PN17 regularisation plan, the proposed placement serves as an interim fundraising measure to strengthen the company’s short-term working capital requirements. 

It also aligns with AAX’s goal of revitalising its existing business and positioning itself for sustainable growth in the post-pandemic era. 

The company is optimistic about the prospects of the aviation industry as a whole. 

With the gradual recovery of air travel demand, AAX anticipates relaunching more of its popular routes, particularly those involving China. The recent announcement of China’s decision to reopen its borders for all travellers in March 2023 has further bolstered the company’s confidence in expanding its operations in that region. 

In the first quarter of 2023, AAX successfully relaunched routes to Osaka, Japan; Busan, Korea; and Shanghai and Hangzhou, China, with Beijing added to its network in April 2023. 

These developments demonstrate the company’s commitment to reconnecting with its core profitable markets. 

In addition to the funds raised through the proposed placement, AAX is also exploring other avenues to strengthen its financial position. 

The company is actively engaging with its stakeholders, including creditors and lessors, to negotiate favourable terms and restructure its existing debt obligations. 

These efforts are aimed at improving the company’s overall financial health and creating a solid foundation for sustained growth. 

Turbulence Ahead 

AAX is aware of the challenges that lie ahead. The aviation industry remains susceptible to unforeseen disruptions and economic uncertainties. 

However, the company is determined to navigate through these challenges by leveraging its strong brand presence, cost-efficient operations and customer-centric approach. 

It will continue to closely monitor market dynamics, adjust its route network as needed and explore innovative strategies to capture market share and drive profitability. 

With the proposed placement and ongoing restructuring efforts, AAX aims to position itself as a resilient and competitive player in the long-haul low-cost carrier segment. 

The company recognises the importance of adapting to changing consumer preferences and evolving market trends. 

It plans to invest in digital transformation initiatives, enhance its customer experience and explore new revenue streams beyond traditional air travel. 

The successful completion of the proposed placement will provide AAX with the necessary resources to execute its growth plans. 

By strengthening its fleet, expanding its route network and improving its operational efficiency, the company aims to capture a larger share of the international travel market and deliver sustainable profitability in the years to come. 

As the aviation industry gradually recovers from the unprecedented crisis, AAX’s revival paints a glimmer of hope on the horizon. Its resurgence not only promises a rejuvenated long-haul travel experience for passengers, but also hints at a broader revitalisation of the industry at large. 

  • This article first appeared in The Malaysian Reserve weekly print edition