Shares in AirAsia’s long-haul carrier sink on restructuring plan
Malaysian tycoon Tony Fernandes’ airline launches last-ditch effort to save business
Shares in AirAsia’s long-haul unit skidded after the Malaysian carrier launched a last-ditch plan to save the business, blaming “severe liquidity constraints” caused by the coronavirus pandemic.
AirAsia X’s Kuala Lumpur-traded stock fell 10 per cent on Wednesday a day after the company warned of “an imminent default of contractual commitments [that] will precipitate a potential liquidation of the airline”.
The proposed restructuring comes as the future of AirAsia, owned by Malaysian tycoon Tony Fernandes, hangs in the balance. The low-cost carrier has been hit hard by virus-driven border closures and travel restrictions that wiped out much of its passenger traffic.
“A major debt restructuring and a renegotiation of its financial obligations are prerequisites for any raising of fresh equity which will be required to restart the airline,” AirAsia X said in a statement late on Tuesday.
The plan, which requires the approval of shareholders, creditors and Malaysia's high court, involves reorganising AirAsia X’s RM63.5bn ($15.3bn) in debt to a principal amount of RM200m and waiving the rest, according to an exchange filing. It also proposes reducing the unit's issued share capital by 90 per cent and consolidating every 10 existing ordinary AirAsia X shares into one. The carrier also will overhaul its workforce, aircraft fleet and route network to slash costs.
AirAsia X said there were “varying degrees of support” for the scheme among its large creditors, all of which have “expressed strong support for a continuation of the airline business”.
Paul Yong, an equity analyst at DBS, said a lot would hinge on how creditors assess AirAsia X’s portfolio and the amount of equity it can raise, which itself depends on how much major shareholders AirAsia and Mr Fernandes are willing to contribute.
AirAsia X had a weak balance sheet prior to the pandemic, he noted, and with long-haul routes among the worst affected by Covid-19 “this is pretty much close to a last-ditch effort to preserve its business”, he said.
As of June 30, AirAsia group's unaudited current liabilities of RM3.38bn were more than double its unaudited current assets of RM1.39bn.
Benyamin Ismail, AirAsia X’s chief executive, said the pandemic had been “extremely difficult” for the airline, which has cut salaries and grounded flights. “Our focus is to ensure a successful restructuring to keep as many jobs as possible,” he said.
AirAsia X, which has been in operation for 13 years, had a fleet of 40 aircraft as of the second quarter and as of July was flying to 26 destinations.
The restructuring coincides with a tough time for the AirAsia group, which this week announced the closure of its Japan unit.
The Malaysian carrier’s auditor in July said coronavirus had cast “significant doubt” on the company’s ability to remain a going concern. Analysts have warned that worse could be yet to come for airlines worldwide as the pandemic shows little sign of abating.
Mr Fernandes bought AirAsia from the Malaysian government in 2001 for less than a dollar and built it into one of south-east Asia’s biggest carriers.
British-educated Mr Fernandes worked early in his career for Richard Branson’s Virgin Music. He is well-known for his forays into English football and Formula One with his ownership of Queens Park Rangers and Caterham, respectively.
AirAsia was this year pulled into a UK bribery investigation of Airbus when the Serious Fraud Office published details of its probe in which individuals associated with Airbus were found to have paid bribes to secure deals with AirAsia and AirAsia X. The airline has said it “vigorously rejects and denies” allegations of wrongdoing.