Kuala Lumpur: AirAsia Group Bhd.’s long-haul arm will undergo a sweeping overhaul that includes restructuring its debt and consolidating its shares as it attempts to weather aviation’s worst-ever crisis.
AirAsia X Bhd. will seek to restructure about 63.5 billion ringgit ($15.3 billion) of debt and reduce 90% of the company’s capital, according to an exchange filing late Tuesday. Fulfilling these proposals will be key to the survival of the company as well as its ability to remain as an ongoing concern, it said.
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“To avoid a liquidation and to allow the airline to fly again, the only option is for AirAsia X to undertake a group-wide debt and corporate restructuring and update its business model to survive and thrive in the long term,” AirAsia X said. “Based on its current financial position and the industry outlook, the group will not be able to meet its immediate debt and other financial commitments.”
Southeast Asia’s second-biggest budget carrier by market value has been under immense pressure this year as the coronavirus pandemic roils the aviation industry, all but wiping out demand for air travel. AirAsia reported its largest loss on record in the quarter ended June 30 and Chief Executive Officer Tony Fernandes has been in talks for joint ventures and collaborations that may result in additional investment.
Under the proposed plan, AirAsia X is seeking approval to consolidate every 10 existing AirAsia X shares into one. As of June 30, the airline had an unaudited deficit in shareholders’ equity of 960 million ringgit and its unaudited current liabilities of 3.38 billion ringgit exceeded unaudited current assets of 1.39 billion.
Leaner cost base
Having operated for 13 years, “AirAsia X focused on a growth and expansion strategy to capture growing traffic in the region by expanding fleet size and investing in new routes,” it said. “Going forward, AirAsia X will strive to rebound as a low-cost medium haul airline with a leaner and more sustainable cost base.”
The carrier said it hopes to begin operating with two aircraft in selected markets in the first quarter of 2021 and gradually resume flights to all destinations by end-2021. Subject to all required approvals being obtained, the restructuring proposals are expected to be completed by the end of March.
People who have purchased or made advance payments for flights that have been cancelled, or for future flights, will have their payments and deposits converted into travel credits with extended validity for future travel or the purchase of seat inventory, according to the statement.
Lim Kian Onn, who has been a member of the board since 2012, has been appointed as deputy chairman to head the restructuring, AirAsia X said in a separate statement Tuesday.
AirAsia X’s growing troubles had been widely flagged. The carrier said in an exchange filing in late August that it needed to reach agreements with major creditors to restructure outstanding debt because it faced “severe liquidity constraints” that threatened its ability to resume flying and continue as a going concern.
The long-haul group also reported a net loss for the three months ended June 30 of 305.2 million ringgit ($74 million), worse than a 207.1 million ringgit deficit a year ago. Sales tumbled 91%.
AirAsia X, whose operations have been suspended since late March, said in the Aug. 26 statement that securing support from aircraft lessors, maintenance service providers and financial institutions was necessary for the restart of scheduled flights on a staggered basis in early 2021 and a return to profitability.
In July, auditor Ernst & Young said there may be “significant doubt” over AirAsia X’s ability to continue as a going concern based on its 2019 financial report.
AirAsiaX has a large backlog of aircraft on order from manufacturer Airbus SE. The airline has 30 A321neos, 78 A330-900 and 10 A350-900s still to be delivered.
Airbus is particularly exposed to the Malaysian-based low-cost carrier through the A330neo, with orders from the airline making up a quarter of the aircraft’s backlog. Airbus lowered A330 output to two jets a month in April, after AirAsiaX postponed deliveries and the virus slammed aircraft demand.
Airlines globally have grounded thousands of planes as governments restricted movement to curb the spread of the virus. Carriers have been raising funds via rights offerings and seeking state support in their efforts to stay afloat. Travel demand won’t return to pre-Covid level until 2024, according to the International Air Transport Association.
Virgin Australia Holdings Ltd. and Colombia’s Avianca Holdings have collapsed, while American Airlines Group Inc. and United Airlines Holdings Inc. are cutting more than 32,000 employees combined. Singapore Airlines Ltd. said last month it would have to eliminate about 4,300 jobs, or 20% of its workforce.
AirAsia, once the poster child of the region’s revolution in low-cost travel, said Monday that it will cease operations in Japan immediately as it tries to reduce cash burn. The group has also stopped funding its Indian affiliate, people familiar with the matter said. AirAsia India Ltd.’s future may now depend on India’s Tata Group, its majority shareholder, which has provided emergency funding but has yet to commit to a full rescue.
AirAsia X was already struggling even pre-pandemic, posting losses for six out of the seven quarters through December 2019.
Prior to the outbreak, AirAsia X flew to places such as Australia, China, India and Saudi Arabia. It’s also the only Malaysian airline that served the U.S. - from Kuala Lumpur to Hawaii via Osaka. In November, the Federal Aviation Administration downgraded Malaysia to so-called Category 2, barring its carriers from adding any more flights to North America.
The carrier’s Malaysia-listed stock is down 68% this year, while shares in AirAsia have sunk 62%.