KUALA LUMPUR: A merger between financially-troubled Capital A Bhd's aviation companies including AirAsia Malaysia, with AirAsia X Bhd will be the "most logical" step to lift the latter from its financial quagmire, analysts said.
The plan would also unlock the intrinsic value of Capital A's non-aviation assets, they added.
Capital A. formerly AirAsia Group Bhd, is seeking to merge its airlines with medium and long-haul offshoot AirAsia X in a bid to avert a potential stock market delisting.
In its filing on Tuesday, Capital A said AirAsia X would acquire AirAsia arms serving Malaysia, Thailand, Indonesia and the Philippines to form a "consolidated aviation group".
Both Capital A and AirAsia X have been designated as Practice Note 17 (PN17) companies by Bursa Malaysia and are at risk of being delisted due to financial distress.
AirAsia X and Capital A are due to submit their business rehabilitation plan, which included the airline consolidation, to Bursa in January 2023. The goal is to implement the plan by July next year.
Capital A particularly is seeking a six-month extension to July 7 next year from Bursa to submit a holistic regularisation plan to remedy its PN17 status.
Aviation consultancy Endau Analytics founder and analyst Shukor Yusof said the merger was not the only way to uplift AirAsia X's PN17 status but it would be the most logical move instead.
"AirAsia X's management has reaffirmed the company's commitment to continue with the low-cost, long-haul strategy and once it finalises its regularisation plan and show financial improvement, exiting PN17 is achievable. Time is its main obstacle," he told the New Straits Times.
On Oct 29 last year, AirAsia X was classified as a PN17 company after its external auditor Messrs Ernst & Young expressed a disclaimer of opinion on its audited financial statements for the 18-month financial period ended June 30, 2021.
PN17 companies will have to submit their restructuring proposal to maintain their listing status.
On the impact the merger would have on local airline sector, Shukor said it was part of a wider, ongoing trend in the industry where airlines were streamlining and realigning their businesses.
Other airlines recently merged included Air India and Vistara, which were consolidated under the Tata Group along with Air India Express Ltd and AirAsia India.
AirAsia X chief executive officer Benyamin Ismail had on Nov 29 said AirAsia Bhd, AirAsia Aviation Group and AirAsia X would form a consolidated aviation group following the merger.
The plan is subject to the approval of AirAsia X's stakeholders and relevant regulatory authorities.
Benyamin said the acquisition of the short-haul airlines under one consolidated group would create synergies with AirAsia X's mid-range operations although the operations of all the airlines would remain separate.
"The strategy is not only expected to strengthen our balance sheet and cash flows but create value for the company as well as our shareholders in the longer term," he said in a statement.
AmInvestment Bank Bhd said the planned merger would see Capital A receiving AirAsia X shares as proceeds of disposal through a share swap arrangement. The shares would be distributed back to its shareholders.
Capital A will be keeping its non-aviation divisions including Asia Digital Engineering, Teleport, airasia SuperApp and BigPay.
"We're positive on the restructuring plan as it will not only resolve the PN17 status but also unlock non-aviation assets' intrinsic value. However, this also means the company would not benefit from the rebound in air travel demand after divesting aviation operations," AmInvest added.
