KUALA LUMPUR: Indonesia’s Transportation Ministry will review the operating licence of AirAsia Bhd’s 49%-owned PT Indonesia AirAsia (IAA) for the positive equity requirement by the July 31 deadline, according to AirAsia group chief executive officer Tan Sri Tony Fernandes.

The review, instead of an immediate suspension of IAA’s licence, may give more time for the AirAsia group to recapitalise its balance sheet.

Fernandes told The Edge Financial Daily that the Indonesian authorities did not mention suspending its operating licence in the letter that IAA received from the ministry. He opined that the Indonesian authorities would prefer not to close down IAA.

However, the news did not stem the fall in AirAsia’s share price, which slid to an intraday low of RM1.26, the lowest level since July 2010. The stock closed at RM1.30 yesterday, down 19 sen or 12.75%, with 144.63 million shares changing hands.

Since June 10, when GMT Research issued a report voicing concerns over the low-cost carrier’s accounting treatments of its associate companies, AirAsia’s share price has declined 35.6% from RM2.02. Some RM2.06 billion of its market capitalisation has evaporated.

Analysts said the review would also lead to the possibility of the local authorities suspending IAA’s operating licence, given that the low-cost carrier had a shareholders’ fund deficit of 3.035 trillion rupiah as at March 31.

TA Securities analyst Tan Kam Meng, when contacted, said he believes that AirAsia would do its best to comply with the equity requirement set by the Indonesian authorities, since Indonesia is an important network for the AirAsia group.

“It will be a big cost for them to lose Indonesia,” he said.

Yesterday, IAA president director Sunu Widyatomoko also clarified that the company’s level of equity had never been an issue as the airline had been fully funded through a variety of sources.

“We wish to emphasise that AAI’s operation remains as per normal, and suggestions that our operational licence will be called into question are not accurate,” Sunu said yesterday.

On Tuesday, AirAsia confirmed that IAA had received a letter from Indonesia’s transportation ministry that requires it to turn its negative equity position positive by July 31.

The group said it is seeking a meeting with the Indonesian authorities, and noted that the letter had no immediate effect on its operations in Indonesia, and that the airline will continue to operate within the ambit of Indonesian law.

Last Friday, The Jakarta Post reported that 13 airlines, including IAA, had been given until July 31 to turn their negative equity into positive figures. Failing to do so will result in their operating permits being suspended by the Transportation Ministry.

This article first appeared in The Edge Financial Daily, on July 9, 2015.