Capital A outlook clouded by state-backed loan denial

 

AirAsia needs to increase capacity above pre-pandemic levels to support commitments for resuming aircraft lease payments, says aviation industry expert. (Bernama pic)

KUALA LUMPUR: AirAsia parent Capital A faces fresh turbulence after the denial of a much-anticipated RM500 million government-backed loan the company was counting on to fund operating expenditures amid the rapid reopening of international borders for travel and tourism in Southeast Asia.

The rejection of the funds comes just as the launch in January of the freshly named holding company and moves to reopen international borders shut by the Covid-19 pandemic had provided a dose of optimism for the budget carrier that has been hit hard by sagging flight demand the past two years.

The frills-free airline failed to fulfil several crucial criteria required by state-owned financier Danajamin Nasional, which includes making Capital A’s founders – Tony Fernandes and Kamarudin Meranun – guarantors for the loan dished out under a framework to assist companies directly affected by the pandemic.

Both Fernandes and Kamarudin jointly own a 24.64% stake in Capital A via two private vehicles, Tune Air and Tune Live.

In January, Bursa Malaysia called Capital A’s finances into question, putting it under “Practice Note 17”, which demands that it conducts a financial restructuring within a year or face automatic delisting.

The airline, which is undergoing recapitalisation, also failed to meet Danajamin’s requirement for a stock exchange-approved regularisation plan to bring its negative shareholder equity above levels of RM40 million and 25% of its share capital.

“Capital A would like to announce that the company will not be proceeding with the club facility because it is unable to accept and/or fulfil certain conditions,” the company said in a stock exchange filing yesterday.

“Capital A is exploring other available debt financing alternatives with acceptable terms suitable to the operations and financing requirements of the company.”

The rejection did not go well with Capital A shareholders, who sent the stock tumbling 4% to close at 64 sen per share on Friday after falling as low as 61.5 sen. Those shares have declined 21.6% so far this year and 45% in the last 12 months.

Capital A aims to raise an additional RM1 billion in 2022 to fund its working and operating expenditure, in addition to RM2 billion raised so far this year.

Analysts are questioning why Fernandes and Kamarudin cannot guarantee the loan, while saying the rejection does not mean the end for the airline.

“If the founders, who reportedly have a combined wealth of over RM1.5 billion according to Forbes, are not ready to back their own company, why should the government,” said Shukor Yusof, founder of aviation consultancy Endau Analytics.

He told Nikkei Asia that since the founders declined to guarantee the loan facility, the remaining options are to raise funds through conventional bank borrowings, divest the founders’ shareholdings in the company or dispose of the London-based Queens Park Rangers football club, owned through private vehicle Tune Group.

“AirAsia’s management had previously said it would be able to come out of the crisis stronger, so it may have a backup plan,” Shukor said.

Brendan Sobie, an independent aviation analyst, concurs. He said Capital A’s fundraising exercise since 2020 has not solely relied on government-backed loans.

“This has been a long saga (as) the process began way back in 2020,” Sobie said.

“AirAsia has been raising funds in the meantime and will need to continue to tap (into) the private sector” regardless of the government component, he said.

AirAsia’s net loss ballooned in 2020 to RM5.1 billion from the RM315.8 million loss reported in 2019. Revenue, meanwhile, sank from RM11.9 billion in 2019 to RM3.1 billion in 2020, reflecting the full impact of the pandemic and travel blockades.

Last year, it reported a net loss of RM3.1 billion with revenue of RM1.73 billion.

According to a Sobie Aviation report, AirAsia needs to increase capacity in Malaysia above pre-pandemic levels to support commitments for resuming aircraft lease payments.

“It would be difficult to meet its commitments without reactivating grounded aircraft and significantly improving aircraft utilisation,” the report said.

“Any assumption from competitors that AirAsia will not be as aggressive this time given its relatively weak financial position is flawed,” it added. “If anything, AirAsia is even more pressured to add domestic capacity and compete aggressively.” - FMT