AirAsia's future in doubt due to virus

AirAsia's future in doubt due to virus

AirAsia planes are seen parked at Kuala Lumpur International Airport 2, during the movement control order due to the outbreak of the coronavirus disease (Covid-19), in Sepang, Malaysia April 14, 2020. (Reuters file photo)
AirAsia planes are seen parked at Kuala Lumpur International Airport 2, during the movement control order due to the outbreak of the coronavirus disease (Covid-19), in Sepang, Malaysia April 14, 2020. (Reuters file photo)

Malaysian budget carrier AirAsia's future is in "significant doubt" due to the collapse in demand for air travel caused by coronavirus, its auditor has warned.

The aviation industry is facing its biggest-ever crisis due to the outbreak, with airlines worldwide laying off huge numbers of staff while some have already gone out of business.

AirAsia, which shook up Southeast Asian budget air travel with its slogan "Now everyone can fly", Monday reported a record quarterly loss of 803 million ringgit ($187 million) for the first three months of the year.

Auditor Ernst & Young said Tuesday that "travel and border restrictions implemented by countries around the world has led to a significant fall in demand for air travel which impacted the group's financial performance and cash flows".

It noted the "existence of material uncertainties that may cast significant doubt on the group's and the company's ability to continue as a going concern", in an unqualified audit opinion statement to the Kuala Lumpur stock exchange.

Trading in AirAsia's shares was halted on Wednesday morning but resumed in the afternoon.

AirAsia Group Bhd shares slumped nearly 18% when trading resumed following the suspension. The budget airline pared its loss to 12% as of 3.40pm local time (2.40pm in Thailand). Trading was halted Wednesday until 2.30pm local time.

This is by far the biggest challenge we have faced since we began in 2001,” AirAsia’s Chief Executive Officer Tony Fernandes said in a statement Monday.

He said the carrier is in talks for joint-ventures and collaborations that may result in additional investment, and it has also applied for bank loans and is weighing proposals to raise capital.

Last month, South Korean conglomerate SK Group said it was reviewing a proposal to buy a small stake in the airline. In May, AirAsia sent a memo to Malaysian banks seeking to borrow 1 billion ringgit, people familiar with the matter said at the time.

AirAsia said in an exchange filing Wednesday that Ernst & Young’s statement and a decline in shareholder equity triggered the criteria for a so-called Practice Note 17, which applies to financially distressed companies. However, the airline won’t be classified as PN17 as the Malaysian exchange suspended application of the status from April through June next year as part of relief measures in light of the coronavirus pandemic.

AirAsia needs at least 2 billion ringgit this year to stay afloat, according to K. Ajith, an aviation analyst at UOB Kay Hian Pte in Singapore.

“There’s not a lot of options, and the best one could be the government stepping in but seeking a rights offering by the company in exchange,” he said.

Despite the warnings, there are signs of improvement with the gradual lifting of restrictions on interstate travel and domestic tourism activities in the countries where AirAsia and its units operate, Ernst & Young said.


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