KUALA LUMPUR (Oct 8): The outcome of AirAsia X Bhd’s (AAX) massive debt restructuring exercise is largely dependent on Airbus and the international lessors.
A big chunk of the low-cost carrier’s RM63.5 billion liabilities are related to aircraft orders that have been made but not delivered, according to people familiar with the matter.
“The bulk of AAX’s borrowings of RM6.09 billion is lease liabilities to these lessors and Rolls Royce,” said a person familiar with the restructuring scheme. “As for the RM63.5 billion figure, most of it — about more than 70% — is to Airbus for planes on order. The planes have been ordered but not delivered.”
As at June 30, AAX’s borrowings amounted to RM6.09 billion, of which a large portion is owed to about 16 international lessors, according to people familiar with the company.
The airline also owes current lease liabilities amounting to RM856.41 million and non-current lease liabilities of RM4.95 billion.
The airline's filing with the Company Commission of Malaysia shows that there are unsatisfied charges with Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd. It is understood that these are bank guarantees to lessors for monthly payments and the amount is “relatively small” compared to the lease liabilities that form 95% of its RM6.09 billion borrowings.
To recap, AAX on Tuesday announced a debt restructuring scheme to reconstitute RM63.5 billion liabilities into principal amount of up to RM200 million.
On top of that, the airline has proposed a capital reduction of 90% or RM1.38 billion of its issued share capital to offset its accumulated losses, as well as share consolidation of every 10 existing shares in AAX into one share.
Meanwhile, AAX said it intends to raise up to RM500 million, including by applying for a government-guaranteed loan under the Danajamin PRIHATIN Guarantee Scheme and/or raising funds from equity providers.
Investment analysts do not foresee any major problem for AAX to obtain the government-guaranteed loan considering that aviation forms a significant part of the local economy.
It is learnt that in 2018, AAX together with AirAsia Group contributed US$2.6 billion to the domestic GDP and supported 76,600 jobs.
The restructuring scheme did not propose a cash call. However, the airline stressed in the announcement that the right-sizing of the group's level of operations and its financial obligations are “pre-requisites for the raising of any fresh capital, comprising both equity and debt, that will be used to support the implementation of its revised business plan”.
The announcement has raised eyebrows considering the steep haircut for its creditors. And that has prompted many to wonder how AAX will convince its creditors.
Public Investment Bank Bhd analyst Nur Farah Syifaa’ Mohamad Fu’ad commented that the restructuring is a necessary first step but it will likely be a long-drawn saga in the rehabilitation of the airline.
“We believe the debt restructuring exercise is needed to address its stretched cash flow and current liquidity constraints, though the significant haircut expected to be assumed by its creditors may be a sticking point,” she wrote.
Another analyst said the haircut is massive and it is unclear how AAX will negotiate with its creditors to successfully restructure its debt.
“If the company doesn’t get the approval of its creditors, AAX could be liquidated and the creditors might end up with nothing. In a way, the creditors are forced to take this deal or risk not getting anything in the end,” said the analyst who declined to be named.
MIDF Research said the debt restructuring proposal will require the approval of at least 75% of the total creditors or it will not be carried through.
The management is expecting to complete the proposal by the end of the first quarter of 2021.
“We opine that the creditors could potentially come to an agreement on the terms but they would have to be content with recovering a minute fraction of their capital. Additionally, the earliest repayment is expected to be due in three years after the restructuring exercise,” said the research house.
MIDF had upgraded its recommendation on AAX to ‘neutral’ from ‘trading sell’ previously and maintained its target price of five sen, due to the retracement in the airline’s share price. It also said there is a slight optimism that the deals will be approved.
Datuk Lim Kian Onn, who has been redesignated as deputy chairman, took up the challenge to lead the carrier’s proposed debt and corporate restructuring.
It will be interesting to see how Lim, a former investment banker, and his team will pull it through.
AAX fell 0.5 sen to close at 4.5 sen, for a market capitalisation of RM186.67 million.