This article first appeared in The Edge Malaysia Weekly on April 8, 2024 - April 14, 2024
CAPITAL A Bhd, the parent company of budget airline AirAsia, is considering a spin-off and separate listing of its engineering arm Asia Digital Engineering Sdn Bhd (ADE), say sources. An initial public offering (IPO) of ADE has been part of the group’s plan all along, they observe, adding that deliberations are still ongoing.
“The group is either going to list ADE separately or together with its other aviation services, including in-flight service provider Santan and shared services business DARTS,” says a source.
While it is not immediately known how much Capital A plans to raise from the listing of its aviation services, another source points out that ADE could be spun off on its own.
For the financial year ended Dec 31, 2023 (FY2023), Capital A’s aviation services posted RM887 million in revenue and RM162 million in earnings before interest, taxes, depreciation and amortisation (Ebitda). ADE — Capital A’s wholly-owned subsidiary involved in aircraft maintenance, repair and overhaul (MRO) — doubled its revenue to RM576 million while its Ebitda jumped 137% year on year to RM146 million.
When contacted by The Edge, Capital A says: “Listing the entities under Capital A, including ADE, has been part of the management’s long-term strategy. We will announce once we have significant developments on our end.”
ADE CEO Mahesh Kumar recently said there was a potential IPO in the pipeline.
“We aspire to get ADE listed. You know, but you never say no. In terms of listing plan, Capital A has various businesses under its portfolio that have listing potential,” Bernama quoted him as saying in a report last month.
In an interview with The Edge recently, Capital A CEO Tan Sri Tony Fernandes said that after selling its airline business to AirAsia X Bhd, Capital A will be left with four companies — Teleport, Capital A Aviation Services, MOVE and Capital A International.
On Jan 8, Capital A entered into a non-binding letter of offer with AAX for the proposed disposal of AirAsia and AirAsia Aviation Group Ltd (AAAGL) for a disposal consideration to be agreed upon by the parties at a later date. AAAGL operates passenger airline services, providing air transport through its subsidiaries in Indonesia, Thailand, Cambodia and the Philippines.
Once the proposal to sell Capital A’s aviation business to AAX is approved by Bursa Malaysia, the balance sheet of the aviation business can be leveraged to raise the capital needed for the aviation group to take off.
At the same time, the sale of the aviation business will further strengthen Capital A’s balance sheet and is another step towards lifting the company out of Practice Note 17 status, said Fernandes. However, the definitive agreement is currently in the works, which means the valuation of the aviation business is yet to be made available.
Fernandes also said the aviation services segment could potentially take over the listing status of Capital A following the exercise.
It is worth noting that in April last year, ADE secured a US$100 million (RM473 million) investment from OCP Asia Ltd, which is earmarked for the construction and operationalisation of a state-of-the-art 14-line aircraft maintenance hangar facility in Sepang. This is in addition to its existing facilities at klia2. ADE has projected that the group could be one of the largest aircraft MRO service providers in the region once the new facility is completed as it also has operations at Subang Airport in Selangor and Senai Airport in Johor.
Once completed, the new facility is expected to speed up the listing of ADE. The facility spanning more than 8.19 acres is being constructed in two phases, with the first phase expected to be completed as early as next month and the second phase sometime in October.
The US$100 million investment will also be used for ADE’s further business expansion in other verticals and geographical markets.
ADE was founded in 2020, using AirAsia’s engineering division as its foundation. The subsidiary is handling 45% of AirAsia’s heavy maintenance. The intention is to eventually take over all of the group’s base maintenance requirements as well as pursue third-party work.
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