KUALA LUMPUR (Oct 29): AirAsia X Bhd (AAX), the low-cost long-haul affiliate of AirAsia Group Bhd, is now classified as a Practice Note 17 (PN17) company after its external auditor Messrs Ernst & Young PLT (EY) expressed a disclaimer of opinion on its audited financial statements for the 18-month financial period ended June 30, 2021 (FPE21).

In a bourse filing on Friday, the carrier said it has 12 months to regularise its financial condition, failing which it will be delisted from Bursa Malaysia.

"The company is taking the necessary steps to address its PN17 status," AAX said, noting that it is currently undertaking a proposed debt and corporate restructuring, as well as a proposed fundraising.

"To date, the court convened meetings for the scheme creditors in respect of the proposed debt restructuring are to be held on Nov 12, prior to the implementation of the proposed corporate restructuring and fundraising," it added. The carrier will require at least 75% of each class of scheme creditors in the meeting to vote favourably for the proposed debt restructuring exercise.

In a separate filing, EY pointed to the global economy and in particular, the commercial airline industry, facing uncertainty over the expected timing of recovery from the Covid-19 pandemic.

"The travel and border restrictions implemented by countries around the world have led to a significant fall in demand for international air travel, which have impacted the group’s and the company's financial position, financial performance and cash flows," it added.

The group and the company reported a net loss of RM33.72 billion and RM33.79 billion respectively for FPE21, while current liabilities exceeded current assets by RM34.21 billion and RM34.30 billion respectively. In addition, the group and the company reported a shareholders’ deficit of RM33.58 billion and RM33.66 billion respectively.

EY also noted that as a result of the pandemic, AAX has grounded most of its aircraft fleet since March 2020 and has deferred payment to creditors. Consequently, it has triggered events of default for various contracts and has made a provision for termination claims of RM25.16 billion in respect of these contracts.

Thus, EY said these events or conditions indicate the existence of material uncertainties that may cast significant doubt on the group’s and the company’s ability to continue as a going concern.

This is not the first time that AAX has triggered the PN17 criteria. It had on July 30, 2020 triggered the criteria after its shareholders’ equity on a consolidated basis fell to less than 25% of its share capital for its unaudited first quarterly results ended March 31, 2020. EY had also issued an unmodified audit opinion on its ability to continue as a going concern in respect of AAX’s audited financial statements for the financial year ended Dec 31, 2019, and its shareholders’ equity on a consolidated basis that was 50% or less of its share capital.

However, AAX was not classified as a PN17 company then, as part of the relief measures provided by Bursa Securities on listed issuers that have triggered the criteria for the classification from April 17, 2020 to June 30, 2021.

AAX shares closed unchanged at 9.5 sen on Friday, bringing a market capitalisation of RM374.37 million.