Analysts are expressing concern over Asia Aviation (AAV), saying higher jet fuel prices and financial strains faced by its Malaysian parent, AirAsia, could eventually affect the SET-listed low-cost carrier’s operations.
Tony Fernandes, co-founder of AirAsia, has rebutted a news report claiming the low-cost carrier needs a government bailout. Unlike many global airlines that received state aid, he noted that AirAsia has survived many crises over the past 25 years without any government bailout, even during Covid-19. Mr Fernandes is chief executive of Capital A, the holding company of AirAsia.
AirAsia Malaysia aims to raise US$1 billion through bonds and debt to reduce financial costs, with completion expected by early 2027. AirAsia Group continues to operate all aircraft as normal, except those grounded for routine maintenance.
Management’s comments at the meeting clarified that a government bailout is not required, indicating that earlier reports did not accurately reflect the firm’s financial position. The brokerage has therefore maintained its earnings projections for this year and next, said Parin Kitchatornpitak, aviation analyst at KGI Securities (Thailand).
“AAV’s business situation is less concerning than that of AirAsia Malaysia. However, in a worst-case scenario, downside risk could arise from intercompany receivables, including ticket sales revenue collected through the AirAsia website, and other joint collaborations,” he said.
Dithanop Vattanawakin, an analyst at Krungsri Securities (KSS), said while AAV’s results are not directly related to AirAsia Group, there may be indirect risks from “related-party receivables”, which stood at over 14 billion baht at the end of the second quarter, of which 7-8 billion baht was overdue, as well as from the loss of various collaborations within the AirAsia group.
KSS has consequently maintained a “cautious view” and continues not to recommend investing, even though AAV’s share price is already below its target price of 1.19 baht, he said.
“Although AirAsia’s press conference helped ease market concerns, AirAsia Group in Malaysia still faces the risk of meeting the stock exchange’s PN17 criteria (financially distressed companies), along with negative shareholders’ equity, an inability to repay debt and an auditor’s ‘going concern’ opinion,” he noted.
CRISIS WILL PASS
Suwat Sinsadok, managing director of Globlex Securities, has a more positive view, saying AirAsia’s management clearly emphasises that AAV should be able to weather the current “jet fuel price spike risk” based on its track record of surviving and recovering quickly from many “Black Swan” events, such as the Covid-19 pandemic and the Russia-Ukraine war, without government assistance.
Since 2011, AAV has suffered three periods of operating losses, each lasting roughly two years.