AirAsia Aircraft at Kuala Lumpur Airport Ahead of Earnings

Photographer: Samsul Said/Bloomberg

AirAsia X Bhd.’s restructuring plan was met with bleak forecasts and ratings from analysts as well as a 10% drop in its share price, underscoring the daunting challenges that lie ahead for the grounded carrier.

Public Investment Bank Bhd. maintained its underperform rating and 1 sen price target on the airline, the long-haul arm of AirAsia Group Bhd. Max Koh, an analyst at KAF Equities Sdn Bhd., kept his sell rating and 0.02 sen target, saying he was neutral on the restructuring proposals “given the grim outlook.” AirAsia X’s shares headed for their biggest loss since Aug. 3.

AirAsia, AirAsia X underperforming a gauge of Asia-Pacific airline stocks

The airline said Tuesday the plan, which it expects to complete by the end of next quarter, would wipe out almost 63.5 billion ringgit ($15.3 billion) in debt and save it from collapse as the coronavirus pandemic continues to wreak havoc on travel. The proposal requires approval from investors and creditors. Advance ticket payments will be converted into travel credits for customers.

AirAsia X said it hopes to begin operating with two aircraft in selected markets in the first quarter next year and gradually resume flights to all destinations by the end of 2021. The carrier said it would focus on flights within the five- to six-hour range and defer investment in new or immature routes.

Here’s what some analysts said about AirAsia X’s restructuring plan:

KAF’s Koh (Sell; target 0.02 sen)

  • This is a “hard reset” for AirAsia X to remain a going concern
  • Neutral on plans to operate with a leaner and lower cost structure and 500-million ringgit fundraising exercise as the airline will need approvals from creditors and shareholders to succeed
  • The aviation industry’s outlook is grim due to the Covid-19 pandemic
  • Fresh equity injection from shareholders should accompany AirAsia X’s request for a steep debt haircut by creditors
  • AirAsia X didn’t provide the proforma impact of its proposals

MIDF Research (Neutral; 0.05 sen)

  • AirAsia’s financial figures highlight its woes; very near-term survival is at stake
  • Without significant debt restructuring, the airline may well become a casualty of the pandemic
  • “Creditors could potentially come to an agreement on the terms but they would have to be content with recovering a minute fraction of their capital”
  • Earliest repayment expected to be three years after the exercise
  • If the proposals fall through, AirAsia X could potentially initiate liquidation proceedings, leaving creditors with nothing
  • Pandemic continues to worsen in much of the airline’s key markets
  • Rating upgraded to neutral based on lenders potentially accepting the plan and because the shares have retraced significantly

Public Investment Bank (Underperform; 0.01 sen)

  • This is the first step in a likely long-drawn rehabilitation saga
  • Debt restructuring is necessary to address stretched cash flow and liquidity constraints
  • “The significant haircut expected to be assumed by its creditors may be a sticking point”

The long-haul unit isn’t the only AirAsia airline in trouble. AirAsia Japan said Monday it stopped operating, while the group has stopped funding its Indian affiliate, according to people familiar with the matter. AirAsia Group reported a record loss in the quarter ended June.

AirAsia’s shares fell 1.6% Wednesday morning, bringing their loss this year to 63%. AirAsia X has slumped 71% in 2020.

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