AirAsia’s future in ‘significant doubt’ as auditor Ernst & Young flags concerns on airline’s ability to continue operating
- Chief executive Tony Fernandes says that airline is facing its biggest challenge since its launch in 2001
- AirAsia needs at least 2 billion ringgit (US$468 million) this year to stay afloat, says aviation analyst at UOB Kay Hian
The slump in air travel and poor financial performance “indicate existence of material uncertainties that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern,” Ernst & Young said in its unqualified audit opinion statement.
Covid-19 plunged the aviation industry globally into crisis as border controls and health concerns vaporised demand for air travel. AirAsia on Monday reported a record quarterly loss of 803.8 million ringgit. It was not until late March and the end of the quarter that the budget airline suspended flights.
06:34
SCMP The Interview: Tony Fernandes on how he built Asia’s largest low-cost carrier
“This is by far the biggest challenge we have faced since we began in 2001,” AirAsia’s chief executive Tony Fernandes said in a statement on Monday.
He said the carrier is in talks for joint ventures and collaborations that may result in additional investment, and it has also applied for bank loans and is weighing proposals to raise capital.
Last month, South Korean conglomerate SK Group said it was reviewing a proposal to buy a small stake in the airline. In May, AirAsia sent a memo to Malaysian banks seeking to borrow 1 billion ringgit, people familiar with the matter said at the time.
AirAsia said in an exchange filing on Wednesday that Ernst & Young’s statement and a decline in shareholder equity triggered the criteria for a so-called Practice Note 17, which applies to financially distressed companies. However, the airline will not be classified as PN17 as the Malaysian exchange suspended application of the status from April through June next year as part of relief measures in light of the coronavirus pandemic.
AirAsia needs at least 2 billion ringgit this year to stay afloat, according to K Ajith, an aviation analyst at UOB Kay Hian in Singapore.
“There’s not a lot of options, and the best one could be the government stepping in but seeking a rights offering by the company in exchange,” he said.
Despite the warnings, there are signs of improvement with the gradual lifting of restrictions on interstate travel and domestic tourism activities in the countries where AirAsia and its units operate, Ernst & Young said.
The airline’s recovery depends on government policies on travel, discussions with financial institutions and investors and its ability to address concerns of its liabilities, the auditor said.
