Tuesday, November 18, 2014

AirAsia X flies into greater turbulence

KUALA LUMPUR: AirAsia X Bhd ( Financial Dashboard), the long-haul, low-cost affiliate of AirAsia Bhd, appears to be encountering greater turbulence. It is said to be facing payment problems relating to staff salaries and their fixed and variable allowances, sources close to the company said.

In view of the financial problems, according to the sources, AirAsia co-founder and group chief executive officer (CEO) Tan Sri Tony Fernandes will take on a “more prominent role” in the management of AirAsia X to revive the airline.

In a circular seen by The Edge Financial Daily, AirAsia X staff were informed that payment of their wages and allowances would be on a staggered basis for the month of October.

It is understood that Fernandes wants AirAsia X to stop its chartered airline services catering to groups of business travellers and instead focus on its scheduled flights.The circular stated that basic salary, fixed allowance, productivity allowance and overtime would be paid on Oct 24, while variable allowances such as flying allowance, sector allowance, night stop allowance and commission would be paid on Oct 31.

Posting allowances for charter flights will be paid on Nov 5.

Describing the unprecedented payment issue as a “temporary setback”, the management of AirAsia X blamed the payment delay to the “late arrival of incoming funds”.

A source told The Edge Financial Daily that apart from the staff payment issue, AirAsia X is also having difficulty seeking aircraft loans from financial institutions due to its current financial position.

“Operating costs of AirAsia X are high and yet, it hasn’t done anything to review its operations and look for ways to cut its costs. It is still taking delivery of new aircraft and maintaining its route network,” said the source.

The airline currently serves 21 destinations in Asia (Nagoya, Haneda, Narita, Osaka, Seoul, Busan, Taipei, Xian, Beijing, Hangzhou, Chengdu, Shanghai, Chongqing, Colombo and Kathmandu), Australia (Sydney, Melbourne, Perth, Adelaide and Gold Coast) and the Middle East (Jeddah).

In December 2013, AirAsia X placed the largest single “airline” firm order for 25 more A330-300s with Airbus. This was reportedly the world’s largest single order in a single purchase agreement valued at US$6 billion by an airline for the A330-300. AirAsia X currently operates a fleet of 20 A330-300s.

Since its listing in July last year, AirAsia X has been registering losses from the fourth quarter of 2013 and is currently in a net debt position. Its cash balance shrank to RM144.7 million as at June 30 from RM262.9 million as at end-2013.

For the second quarter ended June 30, 2014 (2QFY14), AirAsia X’s net loss widened to RM128.79 million from a net loss of RM32.3 million a year ago.

At the same time, operating expenditure in 2QFY14 jumped 59.1% to RM897.3 million due to higher aircraft fuel expenses, maintenance costs, aircraft operating lease expenses and other operating expenses.

AirAsia X is due to release its 3QFY14 results this week, but analysts have cautioned investors about a likely earnings disappointment and its precarious financial position.

In a note dated Nov 12, Maybank IB Research said it expects AirAsia X to continue its loss-making streak in 3QFY14 with a net loss of RM73 million due to declining yields, impact of new route launches and higher cost from lower aircraft utilisation.

Maybank IB also said it is concerned about the airline’s “depleting capital base and soaring debt”.

“We gather from market sources that the current financing term for the A330-300s is 75% to 80% debt and the balance is topped up from equity. This suggests that by the end of 2014, AirAsia X will no longer have much room to borrow due to its low equity base.

“Therefore, the only route in our view is for AirAsia X to raise new equity. Otherwise, it will have to delay its aircraft acquisitions or cancel some or all of them altogether,” said the research house.

AirAsia X’s financial woes have not gone unnoticed by AirAsia group’s top management.
According to sources, Fernandes called for a town hall meeting with staff to announce a management shake-up at AirAsia X yesterday evening at the AirAsia Training Academy in Sepang.

Sources said Fernandes wants to take on a “more prominent role” in the management of AirAsia X and rebrand the airline.

It is understood that Fernandes also wants AirAsia X to stop its chartered airline services catering to groups of business travellers and instead focus on its scheduled flights.

Both Fernandes and AirAsia X CEO Azran Osman-Rani did not reply when contacted by The Edge Financial Daily yesterday.

It has been reported that low-cost long-haul flying has been a difficult nut to crack ever since Laker Airways, a transatlantic British airline, introduced the concept in 1977. However, both Fernandes and Azran had in the past maintained that this model works.

Shares in AirAsia X closed unchanged at 74.5 sen yesterday, 68% below its initial public offering price of RM1.25. Its market capitalisation stood at RM1.77 billion.

Article taken from The Edge

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