Future of AirAsia in ‘significant doubt’, auditor Ernst & Young warns

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AirAsia is in talks for joint ventures and collaborations that may result in additional investment.

KUALA LUMPUR (REUTERS, BLOOMBERG) – Shares in Malaysia’s AirAsia Group Bhd were halted on Wednesday (July 8) after its auditor said its ability to continue as a going concern may be in “significant doubt” because of the impact the coronavirus is having on the indebted carrier.

The airline’s current liabilities already exceeded its current assets by RM1.84 billion (S$600 million) at the end of 2019, Ernst & Young said in a statement to the Kuala Lumpur stock exchange on Wednesday (July 8). The financial performance and cash flow have now been further hit by virus-related travel restrictions.

In an unqualified audit opinion on the airline’s earnings results for 2019, Ernst & Young said the financial statements were prepared on a going concern basis, which is dependent upon a recovery from the Covid-19 pandemic and the success of fundraising efforts.

In response, the airline said in a statement that Malaysia’s stock exchange had granted it 12 months relief from being classified as a financially distressed firm – a classification that would require it to submit a business improvement plan.

Malaysia has also extended the relief to other companies who may face a hit to business from the pandemic.

Like airlines around the world, AirAsia has been hit hard by the coronavirus which has decimated travel demand. It posted a first-quarter loss of RM803.3 million, its biggest loss for the quarter since its listing in November 2004.

The company said last month it was evaluating proposals for raising capital to strengthen its equity base and liquidity.

AirAsia management has guided that an equity raising via a placement or rights issue looks imminent, Affin Hwang Capital analyst Isaac Chow wrote in a note to clients on Tuesday.

AirAsia did not comment on the fund raising efforts.

The trading halt is due to be lifted from 2.30pm local time on Wednesday, a release to the exchange said.

 

 

Finance Minister Tengku Zafrul Aziz told Reuters in June that the ministry had not provided financial aid to any of the country’s airlines and that the airlines have said they “can do okay, on their own.”

AirAsia said on Monday there were ongoing deliberations for joint ventures and collaborations that might result in additional third-party investments in specific segments of the group’s business.

It has also sought payment deferrals from suppliers and lenders and halted all deliveries of Airbus jets this year as it seeks to cut costs.
AirAsia’s shares have halved in value so far this year, giving it a market capitalisation of around US$670 million (S$935 million).

Elsewhere in the region, Thai Airways International and Virgin Australia Holdings have entered bankruptcy protection due to their inability to pay creditors.

 

 

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