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Saving Airasia Group and Airasia X: Covid-19 Recovery Thread

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This is now becoming a story on its own. This is to track the stories relating to the survival challenges that Airasia Group and Airasia X are facing after the Covid-19 pandemic destroyed much of the aviation and travel related industries of the world!

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 AirAsia Studies Fundraising, Joint Ventures Amid Virus Squeeze

AirAsia Group Bhd. is evaluating capital-raising proposals from bankers and looking at potential partnerships as it tries to ease liquidity pressure that’s also having knock-on effects on aircraft lessor Fly Leasing Ltd.

The Malaysian budget carrier is in talks with “a number of parties” about joint ventures and collaboration that may lead to additional investment, it said in a statement. SK Group is reviewing a proposal to buy a small stake in the airline, though no decision has been made yet, a spokesman at South Korea’s third-biggest conglomerate said, without providing further details.

Last month, people familiar with the matter said AirAsia sent a memo to Malaysian banks as it sought to borrow 1 billion ringgit ($235 million) to help fund its operations. The carrier, which has posted losses for three of the past five quarters, is due to report first-quarter results later this month.

https://www.bloomberg.com/news/articles/2020-06-05/airasia-studies-fundraising-joint-ventures-amid-virus-squeeze

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AirAsia boss Fernandes hopeful regional countries will reopen their borders from July

KUALA LUMPUR (June 14): AirAsia Group Bhd founder Tan Sri Tony Fernandes is hopeful that countries in the region will start reopening their borders for international travel from July, starting with Singapore, Thailand, Indo-China and perhaps South Korea, Japan and China.

"It has been a tough three months. I think airlines have probably been one of the companies that suffered the most. We have not had any revenue for three months. We're now getting some sales [but] when you have 300 airplanes sitting on the ground... it has been very tough," Fernandes said in a video post he put up on Instagram yesterday.

More: https://www.theedgemarkets.com/article/airasia-boss-fernandes-hopeful-regional-countries-will-reopen-their-borders-july

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3 hours ago, KK Lee said:

If tf could convience #ddtg to pump ak stock, the story would be different.

It would be interesting to see what they will do to overcome this, and if they would succeed or fail. The highly paid directors have to now prove their worth to the company.

Edited by flee

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Quote

The Board of Directors of AAGB wishes to advise that the Company has been presented with proposals for it to raise capital to strengthen its equity base and/or liquidity from a number of investment bankers, lenders as well as potential investors to help the Company weather the storm caused by the Covid-19 pandemic. In addition, the Company has ongoing deliberations with a number of parties for joint-ventures and collaborations that may result in additional investments in specific segments of the group's business.

 

AAGB is currently evaluating these proposals and may soon reach a decision as to the final form (which may be a combination thereof) as well as the amount to be raised. Any decision made will take into account the Company's business needs and the interests of the Company, its shareholders and other stakeholders. The Company is unable to divulge any information at this stage so as not to jeopardise any of the proposals due to the confidential nature of the discussions with the various parties. However, the Company will ensure to make the necessary follow-up announcements as and when appropriate as well as seek the various approvals (if required) in order to undertake such fund raising exercise.

 

This announcement is dated 4 June 2020.

 

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If the regional countries do not open by end of July, AirAsia Group will initiate second round of layoff. First round they let off around 400 staff and more are in the pipeline. After this COVID19 drama, I hope AAGB/TF will start saving money for any future downturn and keep some high-demand assets rather than really being asset-light company. Well, one may say COVID19 is unprecedented, the piggy money could have mitigate the layoff to minimal amount or future loss. Build an airline with good reputation, prudent spending and Class A stock like Singapore Airlines, and when time comes, you can get funding easier with bank, financial institution and lenders. SQ Group raised USD 15 billion for mitigating COVID19 impact, that shows how well managed and well regarded the Group is in the financial market.

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15 hours ago, JuliusWong said:

If the regional countries do not open by end of July, AirAsia Group will initiate second round of layoff. First round they let off around 400 staff and more are in the pipeline. After this COVID19 drama, I hope AAGB/TF will start saving money for any future downturn and keep some high-demand assets rather than really being asset-light company. Well, one may say COVID19 is unprecedented, the piggy money could have mitigate the layoff to minimal amount or future loss. Build an airline with good reputation, prudent spending and Class A stock like Singapore Airlines, and when time comes, you can get funding easier with bank, financial institution and lenders. SQ Group raised USD 15 billion for mitigating COVID19 impact, that shows how well managed and well regarded the Group is in the financial market.

SQ is a glc, on a mission for sg, have over horizon vision (i.e >10 years), quarterly reports although is important but not critical. AK's existence is to maximize returns to controlling shareholders, is a different breed, is unlikely to change post covid19.

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On 6/20/2020 at 7:55 PM, JuliusWong said:

If the regional countries do not open by end of July, AirAsia Group will initiate second round of layoff. First round they let off around 400 staff and more are in the pipeline. After this COVID19 drama, I hope AAGB/TF will start saving money for any future downturn and keep some high-demand assets rather than really being asset-light company. Well, one may say COVID19 is unprecedented, the piggy money could have mitigate the layoff to minimal amount or future loss. Build an airline with good reputation, prudent spending and Class A stock like Singapore Airlines, and when time comes, you can get funding easier with bank, financial institution and lenders. SQ Group raised USD 15 billion for mitigating COVID19 impact, that shows how well managed and well regarded the Group is in the financial market.

I think TF and KM paid to much attention to analysts - they are not happy with the share price in Bursa as they believed that the company is undervalued. So they tried to "please" analysts by taking their advice on capex and expenditure items.

On capex, they decided to reduce the company's gearing by selling of AAC assets and leasing them back. That was how they ended being asset light and the balance sheet showing low debt (and therefore gearing).

They also listened to analysts about fuel hedging. This is now a big headache for them as they will definitely lose money on the hedging contracts this year.

They had hoped that by pleasing the analysts, the market will value the shares higher. But they forget that Airasia Group is really a private company owned largely by its founders. So the risks of share ownership will be higher and that is probably one of the reasons they marked down the price.

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On 6/21/2020 at 11:40 AM, KK Lee said:

SQ is a glc, on a mission for sg, have over horizon vision (i.e >10 years), quarterly reports although is important but not critical. AK's existence is to maximize returns to controlling shareholders, is a different breed, is unlikely to change post covid19.

Don't think it matters if it is a GLC or private owned company, it is up to the management to run their business with financial prudent and cost conscious or spend a tonne of money on Black Eyes Peas for year end concert. AirAsia Group of airlines share has always been measly any way, those who think they can make big bucks buying AK/D7 shares, I have a bridge to sell to you.

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Unqualified Audit Report with Emphasis of Matter clarification & Latest Business Updates

SEPANG, 9 July 2020 - AirAsia Group Berhad (“AirAsia” or the “Company”) wishes to draw attention to our latest update where AirAsia’s external auditors, Messrs Ernst & Young PLT issued an unqualified audit opinion with an emphasis of matter on material uncertainty relating to going concern in respect of the Company’s audited financial statements for the financial year ended 31 December 2019. 

The unqualified audit opinion states that the financial statements of AirAsia for the financial year ended 31 December 2019 are true and fair and in compliance with financial reporting standards and statutory requirements, in all material aspects. 

The emphasis of matter highlights that there are significant uncertainties with respect to the Company’s ability to continue as a going concern as a result of the unprecedented Covid-19 pandemic. Nevertheless, it is important to note that the financial statements have been prepared on a going concern basis, as the Board of Directors is confident of the successful continuation of the business, in conjunction with the actions undertaken by the governments of the operating entities, outcome of ongoing discussions with financial institutions and investors to obtain required funding and implementation of management’s action plans, in response to the conditions above. 

In this regard, the auditors’ report should be read in full and can be found in the annual audited accounts that is available on the Company’s Investor Relations website. 

Domestic rebound demand is strong; Optimistic of re-opening of international travel

AirAsia Group Berhad CEO, Tan Sri Tony Fernandes said “The first half of 2020 has been extremely challenging. However, in recent weeks, countries around the world have resumed domestic travel and are gradually reopening international borders in recognition that air transport provides the connectivity that is essential for the resumption of economic activities. The formation and discussion of “travel bubbles” and “green lanes”  with key economic partners with a low infection rate and proven pandemic curbing systems, is a step in the right direction.  

“As domestic travel is now allowed in Malaysia, Thailand, Indonesia, India and the Philippines, we have been resuming our flights on a staggered yet steady 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. I am encouraged by the higher-than-anticipated sales this has generated.  On 7 July, we registered our highest post-hibernation sale with 75,000 seats sold in a single day, reflecting pent-up demand and signalling green shoots of recovery. We also sold over 200,000 AirAsia Unlimited Passes since its recent launch for domestic Malaysia, domestic Thailand and AirAsia X. 

“Positive trends in our flight bookings and load factors are additional signals of a better second half of the year. In June, our group-wide load factor was 60% with AirAsia Malaysia’s 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. 

“Teleport, the profitable technology-meets-logistics venture of AirAsia, accelerated it's regional growth despite a challenging environment, growing 49% year-on-year in the first quarter of 2020. This growth was supported by a strong emphasis on transporting medical aid and critical supplies at a time of need. In addition, despite the complete hibernation of the airline group, Teleport pivoted from delivering cross-border e-commerce to last mile deliveries, delivering more parcels, restaurant orders, and fresh produce during the movement control period than in the previous 12 months collectively. With the launch of Freightchain, the world's first digital cargo platform built on blockchain, the re-launch of OURSHOP as an e-commerce marketplace to support the local businesses we love, and rollout of OURFOOD a fuss-free platform to bring all types of food businesses online, Teleport has emerged with even stronger growth prospects for the second half of 2020.

“As a great believer in Asean, we remain confident in the growth potential of the region. In IMF’s latest World Economic Outlook, Asean-5’s GDP growth is expected to rebound strongly to 6.2% in 2021, one of the highest growth rates in the world. We’re confident that AirAsia will not only benefit from this growth upturn but also contribute to the region’s recovery given the significant role that air connectivity plays in Asean’s trade and investment landscape.”

On funding...

“We understand the importance of shoring up our liquidity to ensure sufficient cash flow. We have been presented with proposals in various forms of capital raising, be it debt or equity, and are in ongoing discussions with numerous parties, including investment banks, lenders, as well as interested investors in seeking a favourable outcome for the group. We have received indications from certain financial institutions to support our request for funding, amounting to more than RM1.0 billion. Of this debt funding, a certain portion would be eligible for the government guarantee loan under the Danajamin PRIHATIN Guarantee Scheme in Malaysia. Other than Malaysia, our Philippine and Indonesia entities are currently in various stages of bank loan applications. In the Philippines, we have applied for the government guaranteed loan under the Philippine Economic Stimulus Act (PESA), with an expected positive outcome.” 

On working capital management,...

“During the hibernation period, we have taken significant measures internally as a group while also reaching out externally for assistance to ensure our working capital remains intact. 

“Internally, we have embarked on headcount rationalisation for leaner operations, given the current demand for air travel and expectations on recovery. Internal cost-cutting efforts include a group-wide temporary salary reduction of between 15% - 75%. 

“We have received deferrals from our supportive lessors and are now working on further extensions. We have also restructured 70% of our fuel hedging contracts and are continuously negotiating with our supportive counterparties for the remaining exposure. 

“All in all, we expect at least 50% reduction in our cash expenses in 2020.

“In conclusion, the impact of Covid-19 pandemic on the Company is never taken lightly, as does the trust and support put into us. The management has been working tirelessly to ensure the sustainability of our business operations. With the confidence of our stakeholders and business partners, we are determined to move forward in this new normal. We are positive that the proactive mitigating actions we have implemented as well as our consistency in transforming the Company would aid us in recovering and overcoming this operating environment.

“In times of difficulties lies opportunities.  We have weathered many crisis and emerged stronger. We won’t waste this crisis and we will come out stronger.”

Source: https://newsroom.airasia.com/news/unqualified-audit-report-with-emphasis-of-matter-clarification-amp-latest-business-updates

Audited financial statements for the financial year ended 31 December 2019: https://ir.airasia.com/misc/AA_2019_Annual_Audited_Accounts.pdf

Edited by flee

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17 minutes ago, flee said:

Tony Fernandes says he remains optimistic AirAsia will pull through Covid-19 aviation crisis and recover by next year

Everyone is so focused on the virus destroying demand for travel nowadays, I guess that has, for now at least, overshadowed the potentially even greater threat of an all out China-US trade war, or heaven forbid, China-US armed conflict

It could be that of winning a battle now, but then having to face an even bigger one in an ongoing war

My apologies for the damp sentiments 😀

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On 7/9/2020 at 9:48 PM, BC Tam said:

Everyone is so focused on the virus destroying demand for travel nowadays, I guess that has, for now at least, overshadowed the potentially even greater threat of an all out China-US trade war, or heaven forbid, China-US armed conflict

It could be that of winning a battle now, but then having to face an even bigger one in an ongoing war

My apologies for the damp sentiments 😀

What is happening now is virtually unprecedented - the whole world has ground to a halt at the same time. You can bet Airasia's auditors won't be the only ones flagging companies with signficant and material concerns about the viability of the businesses. We now see public health and economic crises running simultaneously. Armed conflict would add a third dimension. Lets hope that common sense prevails and the current madman at the White House is replaced by someone who is actually able to run the country properly!

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Is AirAsia too big to fail? It should be

Like most other airlines around the world, AirAsia has run into financial headwinds.  What happens in the next few weeks will determine its future shape; this will almost certainly be different from its present form, but for the sake of aviation and tourism in Asia, it is highly important that it survives.

On 8-Jul-2020 EY served notice of “significant uncertainties with respect to the Company’s ability to continue as a going concern”.

AirAsia is now seeking investors, including a possible raising of some nature from its existing shareholders.

Losing the region's leading LCC would at one stroke threaten a large part of the region's tourism industry – in 2019 AirAsia carried more than 35 million passengers.  

More: https://centreforaviation.com/analysis/reports/is-airasia-too-big-to-fail-it-should-be-530828

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