AirAsia shares slump after auditor says airline faces ‘significant doubt’

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KUALA LUMPUR • Group sank yesterday after its Ernst & Young said the carrier’s ability to continue as a going concern may be in “significant ”.

The budget airline lost 15 sen or 17.5 per cent to close at 70 sen. Trading was halted yesterday until 2.30pm.

In a statement to the Kuala Lumpur Stock Exchange yesterday, Ernst & Young said AirAsia’s current liabilities already exceeded its current assets by RM1.84 billion (S$600 million) at the end of last year, a year when it posted a RM283 million net loss. That was before the coronavirus crisis, which has further hit the carrier’s financial performance and cash flow.

The 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.

In response, AirAsia said in an exchange filing yesterday that Ernst & Young’s statement and a decline in shareholder equity triggered the criteria for a so-called Practice Note 17 (PN17), 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 the light of the coronavirus pandemic.

Covid-19 plunged the aviation industry worldwide into crisis as border controls and health concerns vaporised demand for air travel. On Monday, AirAsia reported a record quarterly loss of RM803.8 million. It was not until late March and the end of the quarter that the budget airline suspended flights.

AirAsia’s chief executive Tony Fernandes said in a statement on Monday: “This is by far the biggest challenge we have faced since we began in 2001.”

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 RM1 billion, people familiar with the matter said at the time.

AirAsia needs at least RM2 billion this year to stay afloat, according to Mr 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.

Malaysian Finance Minister Tengku Zafrul Aziz told Reuters earlier this month that the ministry had not provided financial aid to any of the country’s airlines and that the airlines have said they “can do okay, on their own”.

Yesterday, sources told Bloomberg that AirAsia was considering raising about RM1 billion through a rights issue.

The carrier is working with an adviser on the planned capital raising, said the person, who asked not to be named as the information is private.

AirAsia is also weighing raising additional funds via the sale of stakes in its digital and cargo units in order to further strengthen its financial position, said the person.

Deliberations on the planned rights issue and stake sales are ongoing and AirAsia may decide not to proceed, said the people. AirAsia declined to comment on the matter.

Elsewhere in the region, Thai Airways International and Virgin Australia Holdings have entered bankruptcy protection due to their inability to pay creditors.

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