AirAsia Again

Maverick said... (refer blog posting Let's Cheer AirAsia's Best Quarter Ever and AirAsia Announces Massive Profits! )

• The results look good, although the story about the derivatives is very strange.
  
  Interesting is that at the same time there is an announcement from Air Asia:
  
  "The extension of time was made in view of a proposed corporate exercise to obtain shareholders’ approval at an Extraordinary General Meeting to be held on the same date as the AGM for inter alia, financial assistance to associated companies and general mandate for recurrent related party transactions of revenue in nature. The above is subject to the formalisation of the respective definitive agreements and further announcements will be made to Bursa Malaysia Securities Berhad (“Bursa Malaysia”) pursuant to paragraph 8.23 (2) (c) and Chapter 10 of the Listing Requirements of Bursa Malaysia."
  
  Air Asia has more or less parked losses of hundreds of millions of RM in its companies in Thailand and Indonesia, without accounting for it. It does however gave huge loans to these same companies. In my humble opinion, you cant have both, either you top up your investments in those companies (and thus write of the losses so far), or you write off your loans (since these companies must have huge negative equity).
  
  May be the accountants dont like the current situation anymore? It is all vague, but I would not be surprised. If that is the case Air Asia would have to write off 300+ million.

Yes it's indeed very strange for their derivates and I do see your point here.

Anyway couple of other stuffs.

Did you see in the earlier posting I wrote, AirAsia Announces Massive Profits!, AirAsia has now an entry called "Provision for loss on unwinding of derivatives" worth some 151 million in its Current Liabilities section.

And then the forex losses.

I MADE A FLAW earlier when I stated that AirAsia had forex gains. It actually had forex LOSSES! Yeah, I did mention my views are usually flawed, no? :P

Anyway, here's a puzzling thing issue for me. Sorry but I ain't no accountant.

Page 9 of its earnings note.

See how the 90.374million is ADDED back into AirAsia's core operating profit of 165.963 million?

Yeah, that's how I flawed the first time around. Had a quick look and saw some 90.374 was added into the core operating profits, so I naturally assumed it was forex gains!

I am not sure exactly why the forex losses is added into AirAsia's core operating profit.

Any idea Maverick?

Anyway, as it is, I think I have to stress that I believe that AirAsia's borrowings and financial costs is clearly unsustainable. Of course, I could be flawed as usual. :P

3 months ago AirAsia total loans were at 6.690 Billion. In the recent earnings, AirAsia total loans were at 6.934 Billion. And we know the total loans should be increasing.

And these borrowings aren't cheap!

In its February quarterly earnings, AirAsia's bank borrowing costs was 45.918 million.

The below table shows what AirAsia current borrowing cost.

AirAsia's bank borrowing costs is now at a whopping 98.1 million!!!!!!!!!!!!

3 months ago it was 45.918 million!

An increase of over 100%!!!!

And what about capital commitments. In the posting Would You Define AirAsia Debt As A Bubble?, AirAsia total capital commitment then was some 24 Billion ringgit.

Capital commintment as at 31/3/09 is now at 27.2 Billion!!!

I mean, how much more can AirAsia borrow?

And the following comments were interesting for me from Aseambankers report.

• Unwinding of fleet ownership is key to near-term profits. AirAsia entered into a sale and leaseback agreement for an A320 in Feb 2009, making a RM33m profit. This follows the RM52m gain in 4Q08 from selling two new A320s. This helped ease AirAsia’s stretched balance sheet with a net gearing at 3.7x as at end-1Q09 (end-4Q08: 4.0x).

Resorting to sales and leaseback on new planes? I wonder if the leasebacks is causing AirAsia's bank borrowing costs to increase so much!

I guess I am not too impressed.

:D