KUALA LUMPUR (Jan 14): AirAsia Group Bhd, whose share price fell by as much as 26.17% on Friday after the low-cost carrier was classified as a Practice Note 17 (PN17) company following its failure to secure an extension of relief period from the bourse, is now in the midst of formulating a plan to regularise its financial condition, its group chief executive officer Tan Sri Tony Fernandes said.

The airline had triggered the PN17 criteria in July 2020 after its external auditors Ernst & Young PLT issued an unqualified audit opinion with material uncertainty relating to going concern in respect of its financial statements for the financial year ended Dec 31, 2019, and its shareholders' equity on a consolidated basis was 50% or less of its share capital.

But thanks to relief measures introduced by Bursa Malaysia and the Securities Commission Malaysia, it was not classified as a PN17 listed issuer then, and was not required to comply with the obligations under Paragraph 8.04 and PN17 of the Main Market Listing Requirements for 18 months from the date of the first relief announcement, which was July 8, 2020. The 18-month period ended on Jan 7, 2022.

On Thursday, the airline announced it had tried to secure an extension of the relief period from Bursa, but its appeal had been rejected.

The news caused its stock to slide by as much as 19.5 sen on Friday to 55.5 sen, before recouping some losses to settle at its one-year low of 62 sen — still down 16.78% or 12.5 sen from Thursday's close — giving it a market capitalisation of RM2.52 billion after half a billion ringgit in market cap was wiped off during trading hours.

The stock also topped the list of the most active stocks on the local bourse as its trading volume swelled to 330.97 million shares, more than seven times the 45.3 million shares seen traded on Thursday.

After market close, Fernandes issued a statement to say that the airline is taking all necessary steps to address its PN17 status, which he said is a reflection of the current state of its balance sheet that has been negatively impacted by the Covid-19 crisis.

“While we were provided with an 18-month relief period from July 8, 2020, and were subsequently not required to comply with the obligations in the listing requirements, we have undertaken various fundraising exercises to improve our liquidity position. We have also put in place a solid foundation to not only survive but recover from the effects of the pandemic stronger than ever in the near future," Fernandes said.

In particular, he noted that the airline has raised over RM2.5 billion to date, including from a private placement of RM336.48 million in the first quarter of 2021. It also completed its renounceable rights issue of seven-year redeemable convertible unsecured Islamic debt securities (RCUIDS) on Dec 31, 2021, which raised another RM974.51 million for the airline.

Following that, between Jan 11, 2022 and Jan 13, 2022, 256.66 million RCUIDS have been converted into new AirAsia’s ordinary shares, hence improving its shareholders' equity by a corresponding amount.  

Fernandes also assured that the airline will have sufficient liquidity to ride out the effects of the Covid-19 pandemic in 2022, as it plans to raise up to RM400 million in additional capital this year.

He also reiterated that AirAsia is no longer just an airline that is solely reliant on airfares, but an investment company with a portfolio of synergistic travel and lifestyle businesses, all of which he believes are on track to become industry leaders in their respective fields in the Asean region.

"Our robust and diverse portfolios will allow us to fast-track the regularisation of our financial position and affirm the strong viability of our business moving forward," Fernandes said.

He also highlighted that AirAsia's logistics business Teleport is booming in tandem with the cargo industry to meet surging demand, while AirAsia's Super App, which has over 50 million monthly unique visitors even during the pandemic, is expected to continue to soar as the airline industry gains more momentum for a stronger rebound.

“Our fintech arm BigPay has already raised US$100 million (RM417.85 million) and capital raising is well underway for a number of our fastest growing subsidiary companies including Teleport, the airasia Super App and our engineering division Asia Digital Engineering (ADE) — which I believe will soon become the leading aircraft maintenance, repair and overhaul company in the region.

“The most exciting part of our evolution is that we are now delivering more products and services under one umbrella than any other brand in Asean. With access to over 700 million people in the region, I foresee incredible growth opportunities for our brand across many different industries in all of our core markets,” he added.  

Commenting further on the airline business, Fernandes said there may be some delays for international flights to return to pre-Covid levels due to the fast-spreading Omicron, but he believes these will be "short lived", thanks to accelerated booster shots and the world learning to live with the coronavirus.

"Notwithstanding the new variant, many countries have begun to transition gradually into an endemic phase. I am hopeful that borders will reopen gradually throughout 2022 and we will see a return to normal capacity for our international services by the middle to third quarter of this year," he said, adding that recovery is well underway for the aviation and airline industry.

“We are continuing to ramp up domestic operations in our core markets in Malaysia, Indonesia, Thailand and the Philippines to near pre-Covid levels on a number of key routes," he said.  

He also stressed that AirAsia has reduced costs significantly and continues to operate with one of the lowest cost bases in the world.

Meanwhile, UOB Kay Hian Malaysia aviation analyst Jack Goh said in a note on Friday that AirAsia has enough cash flow to last through at least 2022 and 2023, assuming monthly operating cash burn stays constant at RM68 million to RM75 million.

Nonetheless, he anticipates that there will be some downside reaction to AirAsia’s share price in the near term, following Bursa’s dismissal of the airline’s appeal to extend its PN17 relief period.

In the meantime, Goh, who is keeping a “hold” call on AirAsia with a target price of 76 sen, foresees outlook for AirAsia to remain challenging in the first half of 2022 due to the Omicron variant, until meaningful borders relaxation and recovery of international traffic materialise.