This article first appeared in The Edge Financial Daily on March 2, 2018
KUALA LUMPUR: Eighteen months after announcing the intention to sell its aircraft-leasing unit, AirAsia Bhd has found a buyer in San Francisco-based BBAM Ltd Partnership, one of the world’s largest managers of investments in leased commercial jets.
AirAsia is selling its aircraft-leasing operations under wholly-owned subsidiary Asia Aviation Capital Ltd (AACL), to BBAM-managed entities for a total disposal consideration of US$1.18 billion (RM4.64 billion), valuing the business at an enterprise valuation of US$2.85 billion.
As a result of the disposal, AirAsia is expected to recognise a gain on sale of RM967.1 million.
In a filing with Bursa Malaysia yesterday, AirAsia said AACL had entered into three agreements with BBAM-managed entities for the proposed disposal.
Under the agreements’ terms, New York-listed FLY Leasing Ltd, Incline B Aviation Ltd Partnership and Nomura Babcock and Brown will acquire a portfolio of 84 aircraft and 14 engines from AACL, of which 79 aircraft and 14 engines will be leased back to AirAsia and its affiliates.
FLY and Incline have also entered into agreements to acquire 48 aircraft to be delivered to AirAsia and an option to acquire a further 50 aircraft to be delivered.
As part of the disposal consideration, AirAsia will also receive non-cash considerations comprising US$50 million in FLY American depositary shares, resulting in AirAsia owning a 10.2% stake in FLY. AirAsia will also commit US$50 million to Incline Parallel Funds, which will invest alongside the Incline Aviation Master Fund in global aviation investments.
The group’s gearing ratio as at the financial year ended Dec 31, 2016 stood at 1.6 times, and this would reduce to 0.43 times following the disposal. AirAsia expects to complete the disposal by the third quarter of this year.
Credit Suisse, BNP Paribas and RHB Investment Bank Bhd are acting as joint financial advisers to the divestment, and Milbank, Tweed, Hadley & McCloy LLP and Zaid Ibrahim & Co are acting as counsels to AirAsia.
Affin Hwang Capital senior associate director on equity research Loong Chee Wei told The Edge Financial Daily that it is positive for AirAsia to go on more asset-light model through the divestment, as it will ease the financing burden of buying aircraft.
“Having a strong partner (BBAM) also helps relieve some concerns on whether there will be consistent and sufficient supply of aircraft to meet AirAsia’s needs for future growth,” he said.
Nonetheless, Loong, with a “hold” call on AirAsia with a RM4.33 target price, is not making changes to the airline’s rating yet.
“AirAsia has been talking about the divestment for quite some time and we believe they have built up expectations of a potential disposal. The next catalyst would come after they decide on how much special dividend they may pay after the disposal is completed,” he said.