Monday, 12 October 2020

Airasia X: Why Should Creditors Take a Steep Discount?


The Edge Markets on 6 October 2020 reported, AirAsia X Bhd (AAX) has unveiled a massive debt restructuring proposal in which the airline will reconstitute RM63.5 billion worth of debts, including future lease rentals, aircraft purchase commitments (70% or more to Airbus) and advanced ticket sales, into a principal amount of up to RM200 million. This is a steep haircut for creditors. In addition, the long-haul low-cost carrier also proposed a capital reduction of 90% of its issued share capital in order to offset its accumulated losses. This means a reduction of RM1.38 billion from its share capital.

AAX, which slipped to the brink of insolvency as the Covid-19 pandemic added to its financial woes, has also proposed share consolidation to combine every 10 shares into one, according to a bourse filing.

The cash-strapped airline did not propose any cash call to recapitalise its balance sheet in the announcement. Neither has it proposed or found a “white knight” for the rescue.

However, the group said it intends to raise up to RM500 million, including by applying for a government-guaranteed loan under the Danajamin PRIHATIN Guarantee Scheme and/or raising funds from equity providers.

As at June 30, AAX's total borrowings was at RM6.09 billion (16 international lessors), while its current lease liability amounted to RM856.41 million, and its non-current liabilities stood at RM4.95 billion.

AAX's proposal comes just a few days after Malaysia's national carrier, Malaysia Airlines Bhd, revealed on Oct 2 that it had reached out to its lessors, creditors and key suppliers, seeking steep discounts, under an urgent restructuring exercise.

Similarly hit hard by the pandemic, the group's holding company Malaysia Aviation Group had said in a letter to lessors that the group was unlikely to make payments owed after November, unless it received more funding from state fund Khazanah Nasional Bhd.

The new principal sum of RM200 million for Air Asia X is an amount which the group's future operational cash flow may accommodate, and is payable annually over a period of up to five years. The debt settlement amount shall be unsecured and carry an interest rate of 2% per annum payable in arrears, commencing on the anniversary of the implementation date of the proposed debt restructuring.

"In the case of airline customers and travel agents, they will receive travel credits with extended validity for future travel or purchase of seat inventory," said AAX in the announcement to Bursa Malaysia.

Tune Group Sdn Bhd, which is the investment vehicle owned by Tan Sri Tony Fernandes and Datuk Kamarudin Meranun, is the largest shareholder of AAX, holding a 17.83% stake. AirAsia Group Bhd owns 13.76%, while Kamarudin holds an 8.94% direct stake and Fernandes has a 2.69% direct stake.

Its director Datuk Lim Kian Onn, who will assume the deputy chairman to lead the airline's restructuring, owns a 4.24% stake.

The carrier has been loss making in most of the years since it was listed in 2013.

For the six-month period ended June 30, AAX's net loss widened substantially to RM854.9 million as its revenue halved to RM1 billion. MIDF Research said based on Q2 2020, Airasia X’s cash balances stood at RM252m with operating expenditure of RM220 million.

Are creditors taking a steeper discount than shareholders? Which bank will accept these terms? Isn’t it better to put this airline to bed (grave)? Why can’t the creditors convert the debt and takeover the airline? And get professional managers to run it?

If steep discounts are the way forward, it’s a “no brainer” in this land of restructurings. Political connections cannot play a role in driving this idea through. And why should the taxpayer (Danajamin) foot another RM500 million for an “X” airline. It should re-brand its name if it wants to survive! Then look for better viable options!

References:

1. Steep haircut for creditors to rescue Airasia X, The Edge CEO Morning Brief, 6 October 2020

2. Airaisa X to stave off liquidation with RM63.5 bil debt restructuring, www.freemalaysiatoday.com,  7 October 2020

3. Airasia X at existential crossroad, lays “bold” restructuring proposals, New Straits Times, October 7, 2020,

 

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