AirAsia confident of successful continuation of business

PETALING JAYA: AirAsia Group Bhd is confident of the successful continuation of the business, in conjunction with the actions undertaken by the governments of the countries where it has operating entities, outcome of ongoing discussions with financial institutions and investors to obtain required funding and implementation of management’s action plans.

Its CEO Tan Sri Tony Fernandes said the first half of 2020 has been extremely challenging, but noted that some countries have resumed domestic air travel and are gradually reopening international borders.

Domestic travel has resumed in Malaysia, Thailand, Indonesia, India and the Philippines and, as a result, AirAsia has restarted its flights on a staggered basis since late May.

In support of governments’ efforts to revive domestic tourism and ultimately stimulate economic recovery, AirAsia has aggressively launched large-scale promotions and sales campaigns,

and Fernandes said he was encouraged by the higher-than-anticipated sales generated.

He said positive flight bookings and load factors trends are additional signals of a better second half of the year.

“In June, our group-wide load factor was 60% with AirAsia Malaysia’s (MAA) load factor reaching 65%. For July, we expect to achieve a higher load factor of 70% despite tripling our capacity month-on-month to cater to the increased demand,” he said.

With regard to funding, Fernandes shares that the group has received indications from certain financial institutions to support its request for funding, amounting to more than RM1 billion.

“Of this debt funding, a certain portion would be eligible for the government guarantee loan under the Danajamin Prihatin Guarantee Scheme in Malaysia,” he said.

For its operations in the Philippines and Indonesia, AirAsia is in various stages of bank loan applications and it has applied for a government-guaranteed loan under the Philippine Economic Stimulus Act (PESA).

On working capital, AirAsia said it has taken significant measures to ensure its working capital remains intact. The CEO revealed that a 50% reduction in cash expenses is expected in 2020.

In a note, CGS-CIMB Research said it is reasonably confident that AirAsia will survive Covid-19, due to the capital-raising initiatives being undertaken by the group, which will see a total of close to RM3 billion needed to keep the group afloat.

“If Danajamin is willing to guarantee 80% of a new RM1 billion loan to the Malaysian arm, as we expect, it is very likely to be able to secure the loan at reasonable terms, especially since the company does not have many assets left to collateralise, having already sold almost all its planes to aircraft lessors,” it said.

That said, the research house raised concerns about the group’s share price as a potential equity issue of up to RM1.4 billion, will result in the issue of 2.8 billion new shares, increasing the share base by 84% to 6.1 billion shares, diluting existing shareholders.

“An equity issue is necessary because banks are unlikely to keep lending unless there is shareholder support for capital raising (to be obtained via an EGM), and because Danajamin guarantees are not limitless.

“There may be several strategic shareholders waiting in the wings, and the private placements may be made after the new loans are secured, to ensure the best possible valuation. A rights issue is possible, but not on the table right now,” it said.

source https://www.thesundaily.my/business/airasia-confident-of-successful-continuation-of-business-DJ2759647