AirAsia progresess well in divestment of non-core assets

KUCHING: AirAsia Group Bhd (AirAsia) is progressing well in its divestment of non- core assets, analysts observe, despite still having five aircrafts which was not transferred to the purchasers.

In a Bursa filing, AirAsia said the transfers of aircraft and aircraft engines under the Herondell SPA, the Incline B SPA and the FLY SPA have been completed except for five aircraft which are leased to third party airlines with an estimated EV of US$173.67 million.

These will not take place as the agreements have now lapsed, it added.

“In spite of the five aircraft not being transferred to the purchasers, AirAsia still intends to dispose these five aircraft in the future, according to the management,” the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) said.

“The fact that 79 aircraft have already been transferred to the purchasers under the disposal of its aircraft leasing business is a positive sign that AirAsia has progressed well in divesting its non- core assets.

“This is in addition to the proposed sale of 25 aircrafts to Merah Aviation Holding Ltd, an indirectly controlled entity of Castlelake LP.”

With the five aircraft still being leased to third party airlines under Asia Aviation Capital Ltd (AACL), the research arm estimated the increase on depreciation charges to be minimal at only 1.4 per cent which will be partially offset by the lease income obtained.

As such, MIDF Research maintained its earnings estimates for AirAsia’s financial year 2018 ( FY18) and FY19 at this juncture.

The research arm’s core net profit for FY18F and FY19F amounted to RM1.089 billion and RM1.162 billion respectively.

Overall, MIDF Research remained sanguine on the prospect of AirAsia predicated on stable demand growth with conservative average average seat kilometres (ASK) expansion of 13.3 per cent so far in FY18 and resilient load factor despite volatile fuel price.

“While we note that sensitivity of passengers towards increased charges to be low in the past, the possible downward revision in the passenger service charges ( PSC) could be an impetus to further lift load factors.”

MIDF Research believed that AirAsia’s dynamic pricing mechanism will mitigate the effect of having to adhere to the PSC charges which may push average fares higher to sustain margins.

“We continue to like AirAsia as the company continues enhance its cost structure via digitalisation efforts.”