SINGAPORE — AirAsia, Asia’s largest low-cost carrier, is embarking on a massive aircraft sale and leaseback plan involving as many as 120 aircraft to cut its debt.
“Over the next 10 years, we will have an aircraft disposal programme of 120 planes. We expect to have a net cash gain of US$2.5 billion (S$3.38 billion) over that period… Investors haven’t really given us the credit for the fact that we own everything and that there is US$2 billion worth of cash there,” founder and chief executive Tony Fernandes told TODAY in an exclusive interview.
The sale and leaseback is part of broader plans to streamline its operations by paring debt, raising fresh funds and revitalising its network after shares in the company plunged to a five year-low yesterday (July 8) amid fears that its Indonesia wing may be grounded for a lack of funds and following a report questioning its accounting practices. The shares rose 0.8 per cent to close at 1.31 ringgit each today (July 9).
This year, AirAsia plans to undertake a sale and leaseback of up to 20 aircraft in an attempt to bring net gearing down to around 2 times by the end of the year from 2.47 times now. The company is also in the process of raising fresh funds and roping in new strategic investors.
“We will re-capitalise and do a convertible bond issue in Indonesia and the Philippines to be followed by a listing in 2017. While the Philippines is ahead of the game, Indonesia will soon follow. Around US$50 million will be infused as new equity and we will match it. Around US$100 million to US$150 million convertible bonds will be issued at each of the Indonesian and Philippines associates,” Mr Fernandes said.
The airline is also charting out a capacity expansion plan through developing new routes and rationalising its existing network. “We slowed down expansion in the past two years, cutting capacity-building plans by almost half. We are now back on an expansion mode, especially in Malaysia and Thailand. We had slowed down on Indonesia and Philippines but will start to grow there next year,” Mr Fernandes said, looking at new routes connecting India and China with ASEAN.
“We are profitable in Malaysia and Thailand. Indonesia is breaking even and Philippines will break even in the fourth quarter this year,” he added.
“We are not in a short-term game. It took us five years to break even in Thailand. There is no way we will give up in Indonesia, a country that has such immense tourism potential. Anyone who thought we will close down in Indonesia lives in cuckoo land,” Mr Fernandes said in response to reports on AirAsia being forced to shut down Indonesia operations for not meeting the country’s rules on the financial standing of airlines.
Indonesia’s transport ministry today said it would help airlines struggling to meet a deadline to improve their finances, softening from its earlier stance when it warned that it would suspend the licenses of 13 airlines including AirAsia if they do not improve their financial metrics by July 31. Hong-Kong based GMT Research had also questioned the airline’s accounting practices, saying it booked transactions with loss-making associates to boost earnings, but AirAsia denied any wrongdoing, saying its finances had been audited in line with Malaysian accounting standards and practices.