PETALING JAYA: AirAsia Group Bhd has obtained shareholders’ approval for the disposal of 25 aircraft to Castlelake LP for US$768 million (about RM3.2 billion), which will free up cash for the group’s digital business plans.
Almost 100% of its shareholders voted in favour of the deal, according to the carrier’s filing with the stock exchange.
AirAsia Group CEO Tan Sri Tony Fernandes declined to speak to the media at its EGM today.
However, he said in a tweet that the move will result in the group having more cash for its digital business, and enable it to be asset-light.
“Selling our aircraft monetises all our aircraft at high prices and avoids residual risk, and allows us to return cash to shareholders and invest in our new digital business,” he said on Twitter today.
“Between accountants and analysts, investors get a raw deal. MFRS 16 had no impact of cash. I value companies on cash generation. Even with that standard and if you use P&L (profit & loss) for analysis, the impact of the new standard MFRS 16... the impact is about RM35 million a year. Not very material,” he added.
The disposal will be done via the sale of the group’s entire equity interest in Merah Aviation Asset Holding Ltd, which is held by the group’s indirect wholly owned subsidiary Asia Aviation Capital Ltd (AACL), to AS Air Lease Holdings 5T DAC, an entity indirectly controlled by US-based investment firm Castlelake.
In addition to the sale of shares of Merah Aviation, Castlelake will also purchase from AACL a total of four new aircraft to be delivered this year, as announced by the group in December last year.
The 25 aircraft comprising A320-200ceo and A320neo under Merah Aviation, together with the four new aircraft to be delivered (A320-200ceo), will be leased back to AirAsia Bhd and/or its affiliates.
Fernandes said in a statement in December last year that the transaction is part of AirAsia’s ongoing transformation into “something more than an airline”.
“As we move towards becoming a travel technology company, the disposal of these aircraft will not only unlock significant value but also bring us closer to our goal of being a truly digital company.
“Years ago, many analysts criticised us for having high gearing and owning assets. Now many understand why we did that. In a few years, our digital strategy will be understood as well,” he said.
Meanwhile, AllianceDBS Research said AirAsia’s higher leasing expenses post disposal of assets will more than offset the factors contributing to its steady outlook this year, and has cut its FY19 and FY20 earnings projections by 15% and 19.4% respectively.
“We made adjustments to our earnings to account for leasing expenses which costs more than owning an aircraft. We have also adjusted our fleet expansion plans in line with management guidance for an additional 18 aircraft for FY19. This brings the group’s consolidated ASK (available seat kilometre) growth to 9.8%, 5.5% and 4.8% for FY19, FY20 and FY21 respectively,” it said in its report today.
It maintained its “hold” rating for the stock, with a lower target price of RM2.38 which includes a 13 sen special dividend from the Castlelake sale.
The research house said the group’s outlook remains steady as the market leader in the industry with 41.7% market share and expansion plans are underway with 18 new aircraft for FY19.
“ASK is expected to grow at 9.8% and RPK (revenue per kilometre) at 10.1% backed by load factors of 84.7%. Subdued fuel prices would help support earnings. Ancillary income would also grow as AirAsia ramps up REDCargo and AirAsia.com,” it said, noting that ancillary business contributed 20% to group revenue in FY18.
For the longer term, it favours the stock for exposure in the e-commerce business which could potentially benefit from the upcoming growth.