Airasia

Its proposed privatisation is not taking off as its major shareholder Tune Air Sdn Bhd has been hampered by limited financing options due to the global credit crunch.

Sources said that the global credit crunch and economic slowdown, which have seen most of the developed world slipping into recession, had made it difficult for Tune Air to raise money for the purpose.

It is learnt that certain investors who were initially keen to take part in the proposed privatisation of the low-cost carrier had also turned bearish, deciding now not to proceed with it.

As recently as Nov 25 2008, AirAsia chief executive Datuk Seri Tony Fernandes still considered the privatisation of the carrier “definitely an option”.

It had been reported that the privatisation would have cost Tune Air up to RM2.2 billion. Tune Air has a 30.72% stake in AirAsia. The Employees Provident Fund has a direct 8.92% stake in AirAsia (211.71 million shares) and an indrect stake of 0.04% (one million shares). Its other substantial shareholders are T Rowe Price Associates with 6.01% (142.79 million shares) and Nomad Investment Partners 5.83% (138.4 million shares).

On Nov 17 2008, AirAsia said Tune Air was still in the midst of negotiating the terms and conditions with financial institutions and other potential investors to fund the privatisation of the carrier.

In a deviation from the norm and in a rare display of transparency among Malaysian corporates, AirAsia caused a stir when it first announced on Oct 10 2008 that Tune Air was mulling the option of privatising the carrier at an indicative price of about RM1.35 per share. AirAsia had cautioned that the option was “subject to the availability of financing on acceptable terms from financial institutions and other potential investors in these challenging times, as well as a conducive market and industry conditions”.

Despite encountering slowing global demand for air traffic, AirAsia has been expanding its flights and extending its reach regionally, as part of its strategy to garner market share that will put it in good stead over the longer term. A saving grace has been the drastic decline in global oil prices.

Financial Results …

Airasia posted net loss of RM465.53mil due to translation losses and exceptional items.
Airlines were affected by the surge in fuel prices during the third quarter ended Sept 30, where jet fuel averaged US$160 per barrel against US$91 in the previous corresponding period.

AirAsia meanwhile recorded revenue of RM658.48mil in the third quarter 2008 against RM461.59mil previously. It reported a core operating loss of RM76mil against a core operating profit of RM48mil a year ago. The ringgit weakened against the US dollar and this resulted in a translation loss of RM213mil.

The exceptional item amounting to RM215mil relates to the provisions for unwinding our derivatives structures and likely non-recovery of collateral for trades held by Lehman Brothers Commodity Services Inc.

Due to these charges, AirAsia posted a loss after tax of RM466mil after accounting for deferred taxation.

For the nine months ended Sept 30 2008, it posted a net loss of RM294.8mil compared with net profit of RM451.9mil in the previous corresponding period. Revenue increased to RM1.8bil from RM1.3bil a year ago.

Essentially, Airasia settled its fuel hedges in view of the falling fuel prices and took a one off hit in its books. As for its translation losses, it had to book in losses when the ringgit weakened significantly against the US dollar.

Its initially view was that oil prices would stay at US$70 per barrel and it had hedged its fuel based on this parameter. But this view has changed with the eruption of the global financial crisis. Due to the falling and extreme volatile fuel prices, the group has decided to unwind its fuel hedging and limit its losses.

Nevertheless, for its 4QFy2008 it will continue to make provisions in relation to oil contracts but these will not be significant. However, it is confident the airline will be able to recover the cost of unwinding in less than three months.

Airasia is paying spot prices now (Nov 2008) and will likely hedge its fuel requirement when oil prices fall to around US$55 per barrel as the forward contract for oil is currently (Nov 2008) at US$61 per barrel.