SEPANG (Jan 8): Capital A Bhd chief executive officer (CEO) Tan Sri Tony Fernandes will be meeting Thai Prime Minister Srettha Thavisin on Wednesday (Jan 10) to address foreign ownership limits for airlines of no more than 49% in Southeast Asia’s second largest economy.
“I am seeing [the Thai] prime minister on Wednesday; I am hoping [that] eventually, we can be one Asean airline,” he told reporters here on Monday, after announcing the merger of airline businesses under Capital A with AirAsia X Bhd (AAX).
The deal would involve Capital A divesting all of its short haul airline businesses to AAX, including Thai AirAsia Co Ltd (TAA), which is held under Capital A’s 43%-owned Thai-listed Asia Aviation PCL.
AAX, meanwhile, owns 49% of Thai AirAsia X Co Ltd, and a consolidation with TAA may result in changes to the eventual foreign shareholdings in these two Thai companies.
Fernandes said Capital A’s board of directors has approved the merger but negotiation is still ongoing, with both parties aiming to ink definitive agreements over the next few weeks.
Capital A disclosed to Bursa Malaysia that it has entered into a non-binding letter of offer with AAX to divest AirAsia Bhd, which houses its Malaysian airline operations, and AirAsia Aviation Group Ltd, the holding unit of its airlines in Indonesia, Philippines and Thailand, in a cash and/or share deal.
While no value was revealed as talks are still in progress, Kenanga Research has valued Capital A’s airline assets at RM2.5 billion in a report in August last year, based on 10 times the group’s forward price-earnings ratio (PER) for the financial year ending Dec 31, 2024 (FY2024). Maybank IB Research ascribed a much higher valuation of RM5.47 billion, or 91 sen per share based on a forward PER (FY2024) of eight times. Other analysts have said a valuation of between RM2.5 billion and RM5 billion is a more appropriate figure.
“How long will this process take? Probably three or four months, maybe five months. And then, this [RedQ in Sepang] will be home of AirAsia Aviation (AAX’s new name); Capital A will be [in] Damansara Heights. I will be CEO of Capital A, and advisor to Bo [Lingam],” Fernandes said on Monday.
“PN17 has been a little bit of a blessing; in some ways, [it] has been painful but I think it forced us to rethink and recreate,” he added.
Fernandes said post-merger, Capital A will be left with four businesses, namely the aviation maintenance unit Asia Digital Engineering Sdn Bhd; the super app segment carried out by 96.19%-owned AirAsia SuperApp Sdn Bhd; the 77.56%-owned logistics unit Teleport Everywhere Pte Ltd; and the 99.56%-owned digital payments business under BigPay Pte Ltd.
“We built five amazing companies and in Asean, we really want to grow [in] Indonesia and Philippines. We think the tourism potential in both those countries are huge. We would love a licence in Vietnam and Singapore but that is not achievable right now, so really, our growth is going to be very heavily driven by the Philippines and Indonesia, on top of Malaysia and Thailand,” he said.
The Covid-19 outbreak had led all AirAsia aircraft to be grounded in 2020, leading both Capital A and AAX to be categorised as financial-distressed companies under PN17.
AAX’s PN17 was lifted by the local stock exchange last November, and Fernandes on Monday said the merger, coupled with the upcoming listing of Capital A’s brand royalty business and aircraft leasing unit in the US, would help Capital A in lifting its PN17 status as well.
Capital A had in November proposed to inject its brand royalty business and aircraft leasing unit into a Nasdaq-listed special purpose acquisition company (SPAC), aiming for an indicative valuation of US$1 billion (RM4.77 billion).
“With this merger between AAX, it gives us much more flexibility in Indonesia, Philippines, Malaysia and Thailand, to have a much more exciting new structure. To investors now, you are getting an airline that is like Emirates and Qatar; it has widebody aircraft. We don’t need to differentiate anymore,” said Fernandes.
Meanwhile, he shared that AirAsia has 164 aircraft in operation as at fourth quarter last year, with 26 more spare aircraft capacity, and an orderbook of 412 aircraft.
AAX, on the other hand, was running 16 aircraft in 4Q2023, with two spare aircraft capacities.
Additionally, AirAsia is expected to reactivate 180 aircraft in operation and 20 spare aircraft capacities by 1Q2024, while AAX will reactivate 17 aircraft and one spare aircraft.
Overall, the airlines are expecting their capacity to rebound to 83% of pre-pandemic levels by the end of 1Q2024.
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