AirAsia discusses Malaysian government support as fuel cost pressures rise

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AirAsia discusses government support

Highlights

AirAsia held discussions with Malaysia's Finance and Transport Ministries regarding government support and potential fundraising subject to certain conditions that are still under negotiation.
AirAsia was affected by a 66% surge in jet fuel costs in the second quarter to an average of U.S.$183 per barrel and reported a net loss of RM831 million and current liabilities of RM18.4 billion as of 30 June.
The company is targeting fundraising of up to U.S.$1 billion (international debt) and RM700 million (local facilities) for debt refinancing, expected to be completed between December and February.

This article was translated from the original. Read the original version by our correspondent here.

Funding discussions and support conditions

As reported by The Edge Malaysia, citing Reuters, AirAsia co-founder and adviser Tan Sri Tony Fernandes met with officials from Malaysia's finance and transport ministries during the week beginning 28 Sept at his own request. According to three people familiar with the matter, discussions two weeks ago also touched on the possibility of the government supporting AirAsia's fundraising efforts if the airline agreed to certain conditions that are still being discussed.

Fernandes told Reuters in an exclusive interview on Friday that the meeting focused on aviation-related costs such as airport charges and fuel, rather than financial assistance. He stressed that AirAsia was not seeking government aid, and that the government had neither raised concerns with him about the company's financing nor offered direct support.

However, Fernandes said AirAsia would not reject any assistance if offered by any government in its operating countries, including Malaysia, Thailand and Indonesia. He also said he had previously sought government help to facilitate the company's borrowing from Malaysian banks, rather than borrowing overseas, as loans in local currency offer better interest rates and terms.

Representatives of Alton Aviation Consultancy, which Reuters previously reported had been appointed by the Ministry of Finance to assess the funding needs of loss-making AirAsia, also attended the meeting, according to two sources. The Ministry of Finance declined to comment, while the Ministry of Transport and Alton did not respond to requests for comment.

Risks to the domestic market and operations

The Malaysian government is increasingly concerned about AirAsia's financial position because of the potential spillover effects on air connectivity, tourism and related businesses, including state-linked airport operator Malaysia Airports Holdings Berhad, two of the sources said. AirAsia controls about 60% of Malaysia's domestic aviation market and employs 26,000 people, according to Fernandes.

The airline has been hit by a surge in jet fuel costs, which rose 66% in the second quarter from the previous quarter to an average of U.S.$183 per barrel, following the U.S.-Israel war on Iran. As of 30 June, AirAsia had cash and bank balances of RM954 million and current liabilities of RM18.4 billion, and reported a net loss of RM831 million for the second quarter, also pressured by a foreign exchange loss of RM331 million.

AirAsia said it is targeting up to U.S.$1 billion from international debt markets and RM700 million in local credit facilities, primarily to refinance existing debt. Fernandes said on Friday that the U.S.$1 billion fundraising is expected to be completed between December and February, with half used to refinance expensive loans and the remainder for working capital and settling extended liabilities.

He said the company is budgeting for 12 months of high oil prices and has not yet seen demand weaken, with load factors above 80% even when jet fuel prices climbed as high as U.S.$200 per barrel. According to him, levels above U.S.$200 per barrel have not been fully tested, but at some point they could begin to affect demand.

In our earlier report on financing measures and corporate transactions by listed companies in Malaysia, we compiled several key announcements across various sectors, including Genting Bhd's rights issue to raise RM1.25 billion for debt repayment and working capital. We also highlighted how capacity investments (such as semiconductors and alloys) and asset disposals reflect companies' efforts to strengthen their balance sheets and broaden access to capital markets.

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