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Cash-Strapped AirAsia Still Needs to Support Affiliates
AirAsia Group has announced a planned financial restructuring of its Thai businesses, which would include a capital infusion and a reorganization of its 45%-owned Thai AirAsia Co Ltd’s holdings (TAA). The move is hardly surprising, given AirAsia had previously said that its affiliates will seek financial assistance from the nations in which they operate.
In a nutshell, the Thai reorganization aims to generate 6.3 billion baht ($190 million) in new capital, out of a total of 14 billion baht declared. TAA’s effective stake in AirAsia will be reduced from 45% to 40.7%. As of now, subsidiaries in Thailand, Malaysia and India are all undergoing some type of reform. Indonesia AirAsia and AirAsia Philippines could be next in line.
This also begs the question of how much cash AirAsia will require when each of these affiliates goes through their recapitalization and restructuring processes. Analysts believe that the scenario for Indonesia AirAsia and AirAsia Philippines is more difficult. Thailand is a larger, more profitable market, whereas India possessed the necessary resources.
“While [its largest shareholder] Tata Group supports AirAsia India, nobody supports the Philippines and Indonesia except Malaysia (AirAsia Group),” one analyst told Mint.
The Nitty Gritty of the Restructuring Plan
Asia Aviation PCL (AAV), a Thai-listed company, is infusing 3.9 billion baht into TAA through a bank loan as part of the reorganization. For the increased funds injected into the airline, AAV will be granted new shares. TAA will settle 3.9 billion baht in obligations to AirAsia, which will sell its whole remaining ownership in TAA to AAV for 3.8 billion baht, thereby creating TAA a wholly-owned subsidiary of AAV.
AirAsia will then subscribe to AAV’s planned private placement and rights issue, with a 9.5 billion baht stake, giving AAV a 40.7% stake in AirAsia. The reorganization will assist in raising the required funds for TAA’s working capital as well as to revive operations “in a market heavily tourism-dependent and gradually reopening to tourists,” a statement from the group laid out.
It did, however, point out that AirAsia’s involvement in AAV’s private placement exercise would result in TAA’s unrecognized losses crystallizing immediately, “knocking out 20 cents from AirAsia’s net profits and net asset per share,” according to the release. If AirAsia uses all of the revenues from TAA for the fundraising, AirAsia’s share of the new capital infusion into the Thailand company comes to 181.06 million rupiah. Thai AirAsia and Thai AirAsia X were both reported to be among seven airlines requesting 5 billion baht in soft loans from the Thai government.
The Thai operation now has 57 aircraft, 13 of which are in service, according to planespotters.net. In comparison, AirAsia owns a 40% share in AirAsia Philippines (PAA), which operates a fleet of 24 planes, five of which are operational. AirAsia also owns a little more than 49% of PT AirAsia Indonesia TBK (AAID), which operates 25 planes, six of which are operational.
AirAsia has discussed raising up to 2.5 billion rupiah via cash calls and loans in the last year in order to withstand the epidemic. According to one expert, the funds would be used mostly to sustain the Malaysian business, which operated 98 planes at the end of June.
“Restart prices are significant, and gasoline expenses are also considerable,” the analyst said. “They may need RM2.5 billion to restart, but every other plane added to the working fleet will add a lot more to the costs.”
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