KUCHING: All eyes are on AirAirAsia Bhd’s (AirAsia) monetisation of Asia Aviation Capital (AAC) in the aviation sector, with the sale expected to be concluded by the third quarter of financial year 2017 (3QFY17).
In its recent meeting with AirAsia’s management, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) was updated that the sale of AirAsia’s leasing arm, AAC is progressing well and is targeted to be concluded by 3QFY17 as planned.
The research arm highlighted that the sale of AAC could consist of 36 aircraft comprising of aircraft leased to AirAsia’s associates, 28 to 38 aircraft from MAA which would entail a sale and leaseback agreement, 14 aircraft engines and a third of AirAsia’s 400 aircraft order backlog with Airbus consisting of A320neo and A321neo aircraft.
In the research arm’s view, the price tag of US$1 billion to US$1.2 billion was reasonable and could result in a significant gain on disposal when concluded.
MIDF Research expected AirAsia to record less erratic forex gains and losses on a quarterly basis, having novated 29 of the group’s owned aircraft fleet from AirAsia’s books into its fully owned subsidiary, AAC which captured both its assets and liabilities in US dollar.
“Previously, AirAsia’s aircraft assets were captured in ringgit while borrowings (liability) were denominated in US dollar, giving rise to unrealised gains/losses on forex,” it said.
On another note, AirAsia received 34 per cent of the group’s revenue in foreign currencies which helped to offset a good portion of its US dollar denominated operating expenses which the research arm estimated at 70 per cent of its total expenses.
According to MIDF Research, AirAsia and AirAsia X Bhd (AAX) performed remarkably well in 2016, recording load factors of 87 per cent and 79 per cent respectively.
“Showing no signs of slowing down, both airlines aim to expand capacity (ASK) by 10 per cent and 25 per cent respectively in 2017,” MIDF Research said.
“The rationale for the aggressive expansion in capacity stems from the expectation that demand growth will continue to rise in tandem with growing travel demand and an influx of Chinese tourists.”
The research arm noted that Chinese tourist arrivals in Malaysia increased up 50 per cent year on year (y-o-y) to 2.3 million arrivals in 2016 with a target of three million arrivals in 2017.
While full service carriers (FSC) Malaysia Airlines Bhd (MAB) and Malindo are also expected to raise capacity in 2017, the research arm expected the negative impact on low cost carriers (LCCs) to be contained due to the distinction in fares between FSC and LCC.
On pax traffic at Malaysian airports, MIDF Research pointed out that it grew six per centy-o-y in 2016 after recording flat growth in 2015, underpinned by existing airline capacity expansions, new services and increased frequencies from foreign carriers and a recovery of the inbound Chinese sector.
In view of the robust growth in capacity of domestic and foreign carriers, the research arm forecasted a FY17 growth of 6.8 per cent in pax traffic at Malaysian airports.