KUALA LUMPUR: The most recent quarterly report from AirAsia X Bhd (AAX) raised issues among the many investing fraternity that the long-haul low-cost airline could have difficulties in making ends meet, as a consequence of a possible liquidity scarcity.
That is regardless of the group’s improved money stability, which jumped to RM401 million by the shut of the third quarter ended Sept 30 (3QFY19) from RM298 million at end-2018.
It’s because the rise, in accordance with CGS-CIMB Analysis analyst Raymond Yap, was as a result of sale of plane and never working actions. The group raised RM909 million from the sale and leaseback of 5 A330s — three in 2QFY19 and two in 3QFY19.
On the again of that is AAX’s present liabilities, which stood at RM2.three billion, exceeding its present property of RM798 million by RM1.5 billion, Yap identified.
Even after stripping out gross sales prematurely of carriage of RM702 million — representing monies acquired by AAX from advance passenger bookings — present liabilities nonetheless exceed present property by RM809.eight million, Yap mentioned.
On condition that, he’s of the view that AAX would require an fairness fundraising to stay solvent.
“Now we have assumed a 5 billion share challenge at eight sen to lift RM400 million in mid-FY20. Alternatively, main shareholders, resembling Tune Group Sdn Bhd (17.83% stake), AirAsia Bhd (13.76%), Tan Sri Tony Fernandes (2.69%), and/or Datuk Kamarudin Meranun (eight.94%) could have to increase shareholder loans,” he mentioned.
Money from working actions decrease than funds wanted for financing actions
A have a look at AAX’s 3QFY19 money movement assertion exhibits that the group’s internet money generated from working actions was solely RM352.91 million, but it surely wants RM1.14 billion to fund its financing actions.
If not for the RM887 million generated from AAX’s investing actions within the 9 months as much as end-September — largely as a consequence of plane gross sales, which is in keeping with the group’s transfer into an asset-light enterprise mannequin — the group’s 9 months of FY19 would have recorded a internet lower in money.
The truth is, over the previous 5 years, AAX solely managed to generate larger internet money from its working actions than internet money utilized in financing actions in two years, that are FY16 and FY17 — as proven within the group’s Annual Report 2018.
When contacted, unbiased aviation consulting and evaluation agency Sobie Aviation founder, Brendan Sobie, mentioned AAX has been utilizing the sale-and-leaseback technique to spice up its money movement in the previous few years.
“It’s commonplace for airways, notably low-cost airways in Asia, to pursue sale and leaseback. It’s a bit extra uncommon within the wide-body area and it’s not one thing the AirAsia Group has completed traditionally. However lately, AAX has been doing it in an enormous approach,” he mentioned in an e mail response to The Edge Monetary Every day.
Now, after 5 sale and leaseback this 12 months, AAX is left with two plane that aren’t on working leases, famous Sobie, previously an analyst with the CAPA — Centre for Aviation.
“AAX may pursue a sale and leaseback of those final two plane, but it surely is probably not prudent to rely 100% on working leases,” he mentioned, including AAX has already dedicated to the sale and leaseback of its 2020 plane deliveries (A330neo).
A bailout takeover by AirAsia another choice
Other than fairness elevating, Sobie recommended that a takeover by AirAsia Group Bhd would assist AAX handle its liquidity state of affairs.
“AirAsia wants AAX from a community perspective, whereas some AirAsia shareholders have resisted [the possibility of a takeover] till now. Taking up AAX might be a actuality if there aren’t any different viable choices for elevating money,” he mentioned.
“AAX must be sustained as you will need to the broader AirAsia technique. Regardless of AAX’s weak monetary place, there’s not a lot of a priority [that] it’s going to stop operations, because the AirAsia bailout possibility is at all times there,” he added.
Endau Analytics aviation analyst Shukor Yusof concurred that a bailout takeover by AirAsia is an possibility for AAX, whereas noting that the low-cost long-haul mannequin has at all times been difficult and difficult to show a revenue.
“AAX has skilled heavy losses earlier than. Its administration has to determine what’s finest [for the airline]. Maybe delist it and produce it below AirAsia Group? It is determined by how lengthy the corporate is ready to face up to persistent losses. The stability sheet appears to be like like it may face up to close to time period, [but] money name is an possibility,” he mentioned.
One other native brokerage analyst, who declined to be named, agreed with CGS-CIMB’s Yap that fairness elevating is probably going for AAX.
“Visibility [of AAX prospects] is poor as a consequence of competitors, weak client sentiment, and unfavourable ringgit motion.
“From CIMB’s report, money movement appears to be an enormous challenge. Thus, CIMB is assuming fairness elevating, which I believe could occur as AAX could not have a lot funding choices now. Sale and leaseback would undoubtedly give [AAX] some buffer, although it is probably not adequate,” he mentioned.
This isn’t the primary time that issues about AAX money movement was raised, because the group reported a pointy fall in money stability to RM266 million in 3QFY18 from RM433 million as at end-FY17.
Whereas AAX has not made any fairness fundraising to this point, however earlier this month, AirAsia introduced it’s transferring two of its current slots on the Kuala Lumpur-Singapore route, involving 14 flights, to AAX, which permits the latter to participate in 50% of the route’s internet working revenue.
Working challenges ‘aplenty’
In the meantime, CGS-CIMB’s Yap mentioned working challenges for AAX are “aplenty” going ahead, together with overcapacity in sure routes and departure levy.
“3QFY19 outcomes mirrored just one month’s affect from the departure levy; we fear how MAAX’s (Malaysia AirAsia X — AAX’s Malaysian operations) numbers will look in 4QFY19, with a full quarter’s affect.
“MAAX can be as a consequence of take supply of two A330neo from Airbus in FY20F (forecast FY20), [at a time] when overcapacity in Seoul and Taipei, and weak point in Chinese language demand have diminished its day by day plane utilisation from 16 hours to 13 hours,” he mentioned.
“TAAX (Thailand AirAsia X) elevated its fleet measurement to 12 planes after taking new leases for 2 planes in 3QFY19, with one other two leased planes to enter its fleet in 4Q19F, and two extra to be delivered from Airbus in FY20F. On account of its aggressive capability growth, TAAX’s losses could proceed for a while but. In the meantime, IAAX (Indonesia AirAsia X) could return to losses in 4Q19F, if it doesn’t handle to lease out its two planes on good charges. Each TAAX and IAAX are 49% owned by AAX.