AirAsia Bhd's decision to defer the delivery of a batch of A320 aircraft is expected to relieve pressure on the balance sheet of the highly-geared low-cost carrier.
The move would help reduce AirAsia's net gearing and maintain it below the 2-time level next year (2011).
AirAsia's relatively-high net gearing has always been a concern among some investors despite the company's strong growth over the years. As at end-September 2010, AirAsia's net gearing stood at 2.02 time, down from 2.27 times as at end-June 2010.
The aircraft deferment reaffirmed positive stance on the group, as it reflects a forward planning, ambitious-yet-prudent management team.
The lower number of aircraft obligations in 2012 will reduce capital expenditure burden and hence debt-funding requirement as well as lower interest expense.
To recap, AirAsia announced that it had signed an amendment agreement with Airbus SAS to defer taking delivery of 10 A320s in 2012 to 2015 with no penalties payable.
The deferment was to give the group the flexibility to switch from its current order of classic A320 to new generation A320 aircraft, which is supposed to be more fuel-efficient. The deferment will allow the group to optimise capacity with rising air travel demand while relieving pressure on its balance sheet. The move to delay delivery of its aircraft would also help AirAsia attain higher yields and load factors.
With the advent of Firefly encroaching into AirAsia's market, the risk of capacity oversupply is real and cannot be taken lightly Slower capacity growth would help improve yields and load factors.
AirAsia's ability to fund new aircraft purchases and repay loans should no longer be a major concern as operating cashflows should strengthen on stronger earnings visibility.
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