(SEPT 25): Capital A Bhd (KL:CAPITALA) said it no longer needs to carve out its branding business to achieve the positive equity position necessary to exit the Practice Note 17 status.
Instead, the proposed sale of its aviation business to AirAsia X Bhd (KL:AAX) will be sufficient, Capital A chief executive officer Tan Sri Tony Fernandes told The Edge in an interview. The priority right now is to fix the airline business, he said.
“So [the brand business spin-off] is still there, [the process] may be a bit slowed down,” he said. “There’s real cash flow from the brand business.”
Capital A’s passenger traffic has remained below pre-pandemic levels even as average fares rebounded, and the company still had 23 planes in maintenance out of a fleet of nearly 200 aircraft at the end of June.
The company is aiming for a 90% load factor, a measure of how full planes are with paying passengers, and expects fares to remain higher than pre-Covid levels.
Capital A mainly runs the short-haul airline business and also houses subsidiaries such as logistics and e-wallet while AirAsia X mainly operates the medium-to-long routes. Both will hold their extraordinary general meetings in mid-October to obtain approval for the sale of two AirAsia airline companies.
As part of the deal, AAX will issue 2.31 billion shares to Capital A at RM1.30 apiece. Capital A will in turn distribute 1.69 billion of those AAX shares to its shareholders and be left with a projected 18.48% stake in AAX.
Other businesses will stay with Capital A, including the branding business, AirAsia Move app, cargo unit Teleport, its maintenance-repairs-overhaul division, as well as e-wallet unit Big Pay.
In February, Capital A had announced plans to carve out its branding business that charges fees for those who use the AirAsia brand for US$1.15 billion to a US special purpose acquisition company as part of a US listing exercise in a bid to address the PN17 status it has been in since January 2022.
The proposed RM6.68 billion disposal of AirAsia Bhd and AirAsia Aviation Group Ltd to AAX will lead to a pro forma gain of over RM18 billion when the transfer of accumulated losses in the aviation business is included, according to Capital A.
The branding business, parked under Capital A International, will be able to collect a royalty fee based on the revenue generated by the operating companies over its affiliates’ aviation businesses.
Based on the aviation segment’s revenue of RM11.96 billion in 2023, a 1% royalty fee to Capital A International would have amounted to RM119.65 million.
Shares of Capital A ended down two sen or 2.21% at 88.5 sen, giving it a market capitalisation of RM3.81 billion. AAX shares meanwhile slipped 0.5% or one sen to RM1.59, valuing it at RM711 million.