AirAsia on stronger footing with focus on core business

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KUALA LUMPUR: Although the benchmark FTSE Bursa Malaysia CPI ended 0.2 per cent lower last week, AirAsia shares remain unchanged at RM2.67 in the wake of a report on a USD1 billion unsolicited offer for the airline’s aircraft leasing business, said asia.nikkei.com in a report.

The offer was mentioned in a May 31 filing by AirAsia to the Kuala Lumpur Stock Exchange (KLSE). “The offer was not in a legally binding form,” the airline informed the KLSE. “It was preliminary in nature.”

Any deal would mean special dividends for shareholders while raising AirAsia’s valuation, currently six times past its 12 months earnings. “Post-sale, gearing levels would fall, and the risks arising from the associate airline would be shared with the new majority owner of Asia Aviation Capital (AAC),” said CIMB Investment Bank analyst Raymond Yap. “The reduction in the overall risk profile of AirAsia will lift its valuation multiples.”

Already, AirAsia was hiring advisers to evaluate the proposed sale of its AAC. “Once the evaluation is done, we will present it to the Board to decide whether it will be a full or partial sale,” said AirAsia Group Chief Executive Tony Fernandes.

He added that training and insurance were not included in AirAsia’s core business. They were, according to him, purely strategic investments to generate cash. “AAC currently competes with other established companies to get third party airlines deals.”

Fernandes said that his company wants to focus instead on AAC’s senior management team to raise its valuation. This, he said, can be done by strengthening the team.

His remarks, first reported by the Star, were confirmed by an AirAsia spokeswoman, according to asia.nikkei.com.

Separately, AirAsia has appointed Kathleen Tan as president of its North Asia operations. She will look after China, Hong Kong, Macau, Japan, Korea and Taiwan, all rapidly growing markets.

The proposed AAC sale comes during a booming air travel market created in Asia by a fast rising middle class and first-time fliers as the economies grow and expand. It has been estimated by Boeing that the market would need as many as 3,750 new planes in the next 20 years. The orders could be worth USD550 billion.

AAC, set up in September 2014, oversees aircraft leasing arrangements for AirAsia and affiliates and seven other clients including Pakistan International Airlines, according to its latest annual report.

The AAC clients are generally in Indonesia, Thailand and the Philippines. The company has since acquired 41 aircraft.