AirAsia confident in continuation of business despite emphasis of matter by auditor

AirAsia confident in continuation of business despite emphasis of matter by auditor
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KUALA LUMPUR (July 9): AirAsia Group Bhd said it is confident in the continuation of its business despite an emphasis of matter by its auditor highlighting significant uncertainties for the low-cost carrier to continue as a going concern given the effects of the Covid-19 pandemic.

In a statement, it said its business will be supported by actions undertaken by the governments of countries it operates in and the outcome of ongoing discussions with financial institutions and investors to obtain the required funding and implementation of management’s action plans.

“The first half of 2020 was extremely challenging. However, in recent weeks, countries around the world resumed domestic travel and were gradually reopening international borders in recognition that air transport provides the connectivity that is essential for the resumption of economic activities.

“The formation and discussion of ‘travel bubbles’ and ‘green lanes’ with key economic partners with a low infection rate and proven pandemic curbing system are a step in the right direction,” said AirAsia group chief executive officer (CEO) Tan Sri Tony Fernandes.

He added that the group had resumed flights on a “staggered yet steady” basis since late May as domestic travel restarted in Malaysia, Thailand, Indonesia, India and the Philippines.

The group had also launched promotions and campaigns, generating higher-than-expected sales, said Fernandes, pointing out that the group saw a total of 75,000 seats sold in a single day on Tuesday — a sign of pent-up demand.

The group has also sold over 200,000 AirAsia Unlimited Passes since the recent launch for domestic Malaysia, domestic Thailand and AirAsia X.

“Positive trends of our flight bookings and load factors are additional signals of a better second half of the year. In June, our group-wide load factor was 60% with AirAsia Malaysia’s load factor reaching 65%. For July, we expect to achieve a higher load factor of 70% despite tripling our capacity month-on-month to cater to increasing demand,” Fernandes said.

“As a great believer in Asean, we remain confident in the growth potential of the region. In the IMF’s (International Monetary Fund) latest World Economic Outlook, Asean-5’s GDP (gross domestic product) growth was expected to rebound strongly to 6.2% in 2021, one of the highest growth rates in the world. 

“We’re confident that AirAsia will not only benefit from this growth upturn but also contribute to the region’s recovery given the significant role that air connectivity plays in Asean’s trade and investment landscape,” he added.

He also touched on the group’s funding plans, pointing out that the group had received various forms of proposals and were in numerous discussions with banks, lenders as well as investors.

AirAsia had received indications from certain financial institutions to support its request for funding, amounting to more than RM1 billion, said Fernandes.

He emphasised that a certain portion of the loan would be eligible for a government guarantee loan under the Danajamin Prihatin Guarantee Scheme.

Meanwhile, the group’s Philippine and Indonesian entities are in various stages of bank loan applications. It is also applying for a government guarantee loan under the Philippine Economic Stimulus Act (PESA).

On the cost side of its operations, the group has taken measures including headcount rationalisation as well as a group-wide temporary salary reduction of between 15% and 75% to ensure its working capital remains intact.

“We have received deferrals from our supportive lessors and are now working on further extensions. We have also restructured 70% of our fuel hedging contracts and are continuously negotiating with our supportive counterparties for the remaining exposure.

“All in all, we expect at least 50% reduction in our cash expenses in 2020,” said Fernandes. 

On Tuesday, a Bursa Malaysia filing by AirAsia stated that its auditor Ernst & Young PLT had issued an unqualified audit opinion on the material uncertainty relating to the group’s going concern given the current economic climate and the Covid-19 pandemic.

The auditor noted that AirAsia posted a net loss of RM283 million for the financial year ended Dec 31, 2019 (FY19), and that its current liabilities exceeded its current assets by RM1.84 billion.

At 10.30am, AirAsia had gained 3.5 sen or 4.96% to 74 sen, giving it a market capitalisation of RM2.47 billion.

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