KUALA LUMPUR (Feb 21): AirAsia X Bhd (AAX), the low-cost, long-haul affiliate of Capital A Bhd, will raise RM116 million in a one-for-one rights issue of 414 million shares to existing shareholders and RM50 million via a share subscription from new investors, as part of an effort to shore up its balance sheet.
 
However, the total RM166 million funds to be raised is less than what it had intended to raise. In December 2020, the airline told Bursa Malaysia that it had intended to raise up to RM500 million, comprising both a rights issue of up to RM300 million from existing shareholders and a share subscription of shares of up to RM200 million from new investors.

In a bourse filing on Monday (Feb 21), AAX said it has fixed the new shares at 28 sen apiece, about 32.7% less than the theoretical ex-all price of the shares of 41.58 sen, calculated based on the five-day volume weighted average market price of the shares as at Feb 18 of 55.15 sen.

The proceeds will be used for the airline's working capital requirements.

Explaining the reduction in funds to be raised, AAX chief financial officer Andrew Littledale said a larger fund raise is now not only unnecessary but will also be punitively dilutive, particularly to existing retail shareholders who may not be able to fund a bigger rights issue at this difficult time.

Bloomberg data showed that AAX’s largest shareholders are Tune Group Sdn Bhd (17.83%) and Capital A (13.76%). Tune Group is the private vehicle of Capital A co-founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun. Together, they hold an indirect stake of 31.59% in AAX.

“At the beginning of 2021, we had RM95 million in cash. Our average cash burn for the last 14 months averaged RM3 million a month. We will be able to sit through any eventualities in the next couple of years, even if borders do not open, which however will not be the case,” Littledale said in a separate statement.

AAX chief executive officer Benyamin Ismail said the airline was able to reduce its operating loss to RM12 million, as it had expanded its cargo business following its successful restructuring by creditors in November last year.

“We expect to have seven planes fully operational by the end of this quarter with the current fleet of 11 wide-body Airbus A330s all flying by the end of October this year. Discussions are also being held for AAX to lease at least another four planes in preparation for a full resumption of passenger flights, when borders open with a targeted fleet strength of at least 15 A330s.

“We have used the downtime in passenger flying to ramp up cargo revenue and will continue to further build on it. As recently announced, we have now cemented strategic cargo relationships with Teleport and Geodis in this new quarter and we are in various stages of discussions with more global logistics providers to underpin the implementation of our combination carrier strategy, with cargo being the main revenue stream and passengers ancillary to add to it,” added Benyamin.

For the six months ended Dec 31, 2021, AAX reported a net loss and revenue of RM161.08 million and RM218.58 million respectively.

The rights issue and share subscription are undertaken after completion of a RM33.65 billion debt restructuring scheme, to enable AAX to continue as a going concern.

In December last year, it had received scheme creditors' nod, as well as a court sanction to proceed with the restructuring. Upon completion of the exercise, AAX will be among few airlines worldwide that have no gearing and a restructured cost base that is significantly below that of its competitors.

Pangolin Investment Management Pte Ltd director Mohshin Aziz said the smaller rights issue is a surprise. “I suppose there are bigger issues at hand. Maybe they (AAX) need to do [the rights issue] fast, as countries like Australia are opening up and AAX has a good cargo business in Australia already and thus, it wants to leverage the good opportunity to expand,” he added.

An aviation analyst who asked not to be named said the decision to downsize its cash call suggests that AAX’s management is expecting a visible recovery, pointing towards the recent success that the airline had achieved for its air cargo business.

“Since the pandemic, many airlines have shifted to doing cargo. For example, Singapore Airlines is one of the major ones which has pivoted to cargo.”

Mohshin concurs, noting that AAX’s pivot to the cargo business is a right move. He pointed to the record high air freight cost at around US$7 per kilogram, which has proven to be more lucrative than carrying passengers.

However, both Mohshin and the analyst agreed that AAX’s pivot to the cargo space would not be sustainable over the long run, as recovery in air travel is expected to bring more capacity back into the market and this would intensify competition for both passenger and cargo.

While the upside for the aviation industry is good, Mohshin said airlines should remain wary of the high fuel price and inefficiencies in aviation operations after two years of lockdown.

“The high fuel price does not make sense as the global economy is just reopening and consumer demand is still weak. It will be hard for airlines moving forward, but I do not think anyone will have a ready answer on how to overcome the high fuel prices.

“After two years of pandemic, the world has become so inefficient. We do not have enough pilots, air traffic controllers and ground operations staff to handle the airport; even the customs and immigration staff have declined in terms of manpower efficiency.

“This is a big issue that we have taken for granted before the pandemic, the overall infrastructure and manpower efficiency have suffered a lot due to the pandemic,” Mohshin said.

He also highlighted that continued border restrictions in major countries such as China will have a negative impact on the recovery of air travel, as they are still the largest group of travellers in the world.

AAX shares closed down 2.5 sen or 4% at 60 sen on Monday, giving it a market capitalisation of RM248.9 million.