And it continues....
AirAsia Could Slip Into The Red In FY15, Says Analyst
Alexander Winifred
The Malaysia Reserve
Thursday, October 8, 2015
AirAsia Bhd could slip into the red for the financial year 2015 (FY15) due to costly turnaround plans for its ailing Indonesian unit and the weak ringgit. AllianceDBS Research Sdn Bhd said the low-cost carrier could register a RM697 million loss for FY15 on the back of a revenue forecast of RM5.4 billion.
AllianceDBS analyst Tan Kee Hoong said much of the losses stem from the RM474.2 million capital injection required to keep Indonesia AirAsia (IAA) in positive equity position and avoid suspension by the Indonesian Directorate General of Civil Aviation.
He said the steep depreciation of the ringgit, which has dropped about 26% against the dollar this year, has added extra burden on the company’s financials.
“AirAsia has about RM10.5 billion in borrowings and about 85% of the debt is in US dollar,” Tan told The Malaysian Reserve (TMR) recently.
Although the carrier had a glorious RM1 billion profit in 2010, its profits began to go on a tailspin and plummet to RM83 million in 2014, a 77% drop compared to the RM362 million recorded in 2013.
Its share price also took a beating, dropping about 40% this year.
A negative report by Hong Kong-based GMT Research, claiming the airline needs to raise RM7 billion to address the financial health of its affiliates in Indonesia, Thailand, India and the Philippines, had investors dumping the shares to its lowest level in August.
AirAsia had embarked on an aggressive expansion mode, almost doubling its aircraft to 172 between 2010 and 2014.
Although revenues grew from RM3.94 billion to RM5.42 billion between 2010 and 2014, the company’s expenses had increased significantly from RM2.88 billion in 2010 to RM4.5 billion in 2014.
The airline is also facing an uphill task to refresh its “Everyone Can Fly” concept as the market becomes more competitive.
“AirAsia has become a ‘normal’ airline,” said Shukor Yusof, founder of Johor-based aviation research house Endau Analytics.
He said it benefitted from being a pioneering low-cost airline in the first five to six years in the market.
After more than a decade, the AirAsia Group has moved beyond its original “straightforward” business model, he said.
“It is more diversified, has a long-haul wide-body division and is facing challenges in its next phase of evolution,” Shukor said.
Ventures in the Philippines and Indonesia are facing immense challenges and ranked among the world’s most competitive aviation markets with established players such as Cebu Pacific Inc and the Lion Group.
IAA had 4.2 trillion (RM1.28 billion) of negative equity as of the end of the second-quarter of 2015.
Confidence was further dented after the air disaster in the Java Sea on Dec 28, 2014, killing all 162 passengers and seven crew on board.
On Oct 1, AirAsia converted part of the existing ampount due from IAA of 2.06 trillion (RM474.2 million) to subscribe to 49% of the latter’s perpetual capital securities issue, with the remaining 51% still pending subscription.
“Failure to attract thirdparty investors into IAA would mean AirAsia will have to continue funding the former, a drag on AirAsia’s cashflow which may ultimately result in a cash call,” AllianceDBS’ Tan said in his report.
“Struggling affiliates are not AirAsia’s only concern. It may also need to bail out its longhaul, wide-body cousin by merging or taking over Air Asia X Bhd,” analysts told TMR.
“Such moves could be the only option if AirAsia intends to maintain a presence in mediumand long-haul markets,” Brendan Sobie, Singapore-based chief analyst at CAPA Centre for Aviation said in a phone interview.
AirAsia X reported a total cumulative losses of RM768 million as of Aug 30.
“AirAsia X has been trying to restructure and focus on routes that are profitable,” Sobie said.
“If current attempts to improve the airline fail, a merger might have to be looked at.”
AirAsia X officers declined to comment on the possibility of the airline being taken over by AirAsia. Despite faltering results over the last few years, AirAsia X has been very “gung-ho” about the outlook, Shukor said.
“How many times have they been profitable throughout the last eight years?” he asked, adding that many airlines tried the AirAsia X’s “tricky” lowcost, long-haul model but failed.
For example, Singapore Airlines’ medium-to-longhaul, low-cost affiliate Scoot failed to be profitable since it was launched in 2011.
“Initially, there was a feeling AirAsia X could pull it off,” he said.
Meanwhile, AirAsia said it had no knowledge on reports saying it would be taken private. The company told Bursa Malaysia yesterday that it was first made aware of the privatisation rumour since it surfaced in August this year with the company’s shares being actively traded.
“This was just prior to the company announcing its proposal for a share buy-back of up to 10% on Sept 18, 2015,” it said.
The airline said it is in discussion with certain bankers to partially finance the buyback of these AirAsia shares.
It said the circulars to the shareholders are currently being drafted in preparation for the coming EGM, tentatively set for November this year, where shareholders’ approval would be sought for the proposed share buy-back.
AirAsia’s share was up seven sen or 5.6% to RM1.32 yesterday and was the second most traded counter at the local bourse.