KUALA LUMPUR: AirAsia Group Bhd is in need of urgent financial help as the low-cost carrier’s current cash balance may only support it for less than five months, CGS-CIMB Research said.
The research firm estimated that AirAsia’s cash burn rate might be around RM527 million a month.
This is due to the owing to fixed cash operating costs of RM192 million (after per month, after assuming a 32 per cent cut to the run rate of RM283 million per month last year), cash costs for operating lease instalments and financing expenses of RM258 million, and fuel hedging losses of RM77 million by using US$35 as the average Brent spot price for rest of the year.
“AirAsia had a cash balance of RM2.6 billion at end-2019, including RM1.2 billion of sales in advance of carriage,” CGS-CIMB analyst Raymond Yap wrote in a report.
“Assuming 20 per cent of the sales in advance of carriage is refunded, due to AirAsia’s many flight cancellations, the remaining cash balance of RM2.4 billion can pay for AirAsia’s fixed costs for less than five months under the current conditions,” he added.
Yap said this required AirAsia to get new funding or defer payments to its suppliers.
AirAsia, he said, was on the lookout for short-term working capital facilities from the government to give a guarantee for a loan that the airline hoped to take from local commercial banks at low interest rates.
“At this moment, a rights issue is not on the table, but this is a potential downside risk in the future. AirAsia is also renegotiating aircraft operating lease payments and fuel hedging losses with a view to defer those payments,” he added.
Yap expects AirAsia to raise an additional RM1 billion in debt funding this year, followed by RM600 million in the next two years to tide through bruising losses and cash burn arising from the Covid-19 pandemic.
“Although AirAsia is not government owned, we believe that the government will not allow the airline group to fail, as it will hurt Malaysia’s economy,” he added.
Aviation market has been waiting for the government’s concrete action to help the industry. But up to this point, Yap said CGS-CIMB had not seen any substantial measures.
“Potential de-rating catalysts include a very slow pick-up in travel demand even after the end of the Malaysian movement control order,” he said.
Yap said AirAsia had suspended its operations partially or fully in Malaysia, Thailand, Indonesia, the Philippines and India. Up to 96 per cent of the group’s aircraft had been grounded.
“This was due to the various restrictions on domestic and international travel imposed by the countries that AirAsia group are based in, and those countries to which it flies to.”