AirAsia shares decline 17.5% after auditor raises concerns over its future viability
AirAsia Group’s shares slumped after trading resumed following a suspension when its auditor warned there are material uncertainties that cast doubt about the Malaysian airline’s ability to continue as a going concern.
Trading in the airline was suspended yesterday before resuming at 10.30am UAE time. The low-cost operator’s shares closed 17.5 per cent lower.
The group had a net loss of 283 million ringgit (Dh243m) for the 2019 financial year and its current liabilities exceeded its current assets by 1.84 billion ringgit, Ernst & Young said in an unqualified audit opinion on the group’s 2019 financial results.
On top of that, the significant fall in air travel demand because of coronavirus-related border restrictions have hit the group’s financial performance and cash flow, it said.
These conditions and the 2019 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”, EY said in a statement to Bursa Malaysia.
AirAsia responded in a statement to the Kuala Lumpur stock exchange and said EY’s declaration triggered criteria for so-called Practice Note 17, a classification for financially distressed companies.
However, the bourse has granted AirAsia relief from this classification for 12 months, the airline said.
AirAsia, like its peers around the world, has been hit hard by the Covid-19 pandemic that has paralysed air travel demand globally.
“The company is among a handful of notably fragile carriers burdened by higher-than-average liabilities even for the industry,” said Luya You, an analyst at Bocom International.
Before Covid-19, AirAsia pursued an aggressive growth strategy with massive aircraft orders and succeeded in gaining market share amid strong demand for budget travel.
“We are now seeing the risks of that strategy magnified by Covid-19,” Ms You said.
The airline is struggling to meet the residual obligations of expansion as revenue withers during the pandemic.
“Basically, cash inflow has been reduced to a trickle while outflow is likely to be high as ever given fixed obligations,” she added.
Governments around the world have stepped in with financial rescue packages to help their airlines survive the crisis.
“Direct government financial aid is certainly a possibility considering the massive role AirAsia fills regionally,” Ms You said.
“Faster-than-expected return of demand through the completion of regional ‘travel bubbles or corridors’ could also help AirAsia significantly.”
However, both options would require serious government co-ordination and support.
“Whether the airline survives intact is likely to depend on if we can see more government action in coming weeks,” Ms You said.
Some governments are gradually opening their borders and easing restrictions on travel as they attempt to revive their economies.
AirAsia “has seen positive developments” on its business operations as passenger bookings, flight frequencies and load factors are gradually improving to cater for the increasing demand, the auditor said in its report.
EY said the financial statements of the group and the company have been prepared on a going concern basis, the validity of which depends on a number of elements.
Those include a successful recovery from the pandemic, actions taken by other countries’ governments, a favourable outcome from ongoing discussions being held with financial institutions and investors and dealing effectively with the fallout that has resulted from the crisis.
Before Covid-19, AirAsia pursued an aggressive growth strategy with massive aircraft orders and gained market share