This article first appeared in The Edge Malaysia Weekly on October 30, 2023 - November 5, 2023

BURSA Securities has denied imposing any additional requirements on AirAsia X Bhd (AAX), days after the regulator rejected the medium-haul, low-cost airline’s application for a waiver to submit a regularisation plan and lift itself out of the Practice Note 17 (PN17) financially distressed category.

The stock exchange regulator told The Edge last Friday that it had rejected AAX’s application for a waiver and upliftment from its PN17 status because the airline “did not meet some of the requirements in paragraph 8.04 and PN17 of the Main Market listing requirements (MMLR) of Bursa Securities”. However, it did not disclose what those requirements were.

On Oct 19, AAX announced that the regulator had rejected its application, three months after the airline had filed it. AAX provided no further details, only to say that it has until Jan 17, 2024, to submit its regularisation plan to the regulatory authorities.

Last Wednesday, theedgemalaysia.com cited unnamed sources as saying that the regulator had imposed extra requirements on AAX, including requesting a certificate from the airline’s external auditor Messrs Ernst & Young PLT (EY) that states that there are no one-off items on AAX’s income statements. According to the report, the regulator had also requested AAX to show four consecutive quarters of net profit to exit the stock exchange’s financially distressed category.

“All applications related to paragraph 8.04 and PN17 of the MMLR must comply with the requirements outlined in the said provisions. Bursa Securities has not imposed any additional requirements on AAX with regard to the application,” the exchange said in an email reply to The Edge.

Paragraph 8.04 of the MMLR states that the financial condition of a listed issuer on a consolidated basis must, in the opinion of the exchange, warrant continued trading or listing.

The paragraph goes on to say that the exchange may prescribe certain criteria in relation to the financial condition of a listed issuer. When a listed issuer triggers any of the prescribed criteria (PN17 issuer), it must comply with such requirements as may be prescribed by the exchange, failing which the exchange may suspend the trading of listed securities of such listed issuer or de-list it, or both.

Bursa Securities told The Edge that for a PN17-affected listed issuer to be no longer considered one, one of the factors considered is that the company must record a net profit in the two latest consecutive quarterly results and must ensure that the relevant quarterly results are subjected to a limited review by an external auditor.

However, sources had blamed the recent rejection of AAX’s application to lift its PN17 status on Bursa Securities moving the goalposts, of which one was for AAX to show four consecutive quarters of net profit.

Bursa Securities response to this was, “The principal adviser of AAX (AmInvestment Bank Bhd) had, at its own accord, provided three quarters of financial results with net profit — where a limited review had been performed by AAX’s external auditor — in their application for waiver and upliftment submitted to Bursa Securities for consideration.

“During the processing of the application, AAX announced, as required, its quarterly financial results for the period ended June 30, 2023, on Aug 28, 2023. Thus, per the listing requirements, the June 30, 2023, quarterly results will be one of the two latest consecutive quarterly results taken into consideration in the processing of the application for waiver and upliftment,” it added, noting that AAX’s first two quarters of 2023 results qualify as the two latest consecutive quarters.

For the second quarter ended June 30, 2023 (2QFY2023), AAX posted a net profit of RM5.54 million, down 98% from RM328 million in 1QFY2023. Since 3Q last year, it has generated a net profit in four straight quarters, two of them in 2023.

According to sources, officials of AAX and Bursa Securities are also at loggerheads over what should be classified as one-off items in aviation and what should not.

“As defined in PN17 of the MMLR, the ‘net profit’ in the quarterly results must be the net profit after non-controlling interest and excluding one-off items,” said Bursa Securities.

“Accordingly, it is the obligation of AAX and its advisers to ascertain that the ‘net profit’ stated on their application complies with the defined net profit as stipulated in PN17 and to assure Bursa Securities of the same,” it added.

However, some quarters believe that in aviation, apart from ticket sales, buying and selling of aircraft and provisions for travel vouchers that are distributed to passengers and travel agents should be considered a normal income stream and included in the airline’s profit and loss statement.

Given AAX’s recent setback and the risks of suspension if it fails to submit a regularisation plan to lift its PN17 status before Jan 17, 2024, it remains to be seen what the airline’s next course of action will be. In its Oct 19 filing with Bursa Malaysia, AAX said it will consider all available options, including the possibility of an appeal. 

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