KUCHING: Analysts are positive on AirAsia Group Bhd’s (AirAsia) proposed aircraft disposals to Castlelake, LP (Castlelake), given that the sales of these aircraft would further strengthen its already decent balance sheet.
In a filing on Bursa Malaysia, RHB Investment Bank Bhd announced on behalf of AirAsia’s board of directors that its indirect wholly-owned subsidiary Asia Aviation Capital Lgtd (AACL) had entered into a share purchase agreement (SPA) with AS Air Lease Holdings 5T DAC (purchaser) and AS Air Lease 8 (Offshore) LP (purchaser guarantor), both entities indirectly controlled by Castlelake.
This SPA was for the proposed disposal by AACL to the purchaser of its entire equity interest in Merah Aviation Asset Holding Limited, which will own 25 aircraft to be leased to AirAsia Bhd (AAB), a direct wholly-owned subsidiary of AirAsia, for an aggregate consideration of US$768 million (approximately RM3.2164 billion), subject to terms and conditions as stipulated in the SPA.
“We are optimistic on management’s continuous degearing effort, as these sales of aircraft would further strengthen its already decent balance sheet, which is in a net cash position since 3Q18 after they concluded the sale of aircrafts to BBAM.
“AirAsia would be registering one-off net gain of RM174.9 million from this particular transaction, and we do not rule out another round of special dividend,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said.
Kenanga Research recapped that management decided to reward AirAsia’s shareholders with 40 sen special dividend from the BBAM deal proceeds.
“Assuming 30 per cent pay-out from its remaining proceeds from Castlelake deal after settling its debts and expenses, we would expect special dividend of 10 sen to 12 sen should management be feeling generous in rewarding its shareholders again.”
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Reserch), AirAsia’s strong net cash pile will bode well for the group’s route network expansion without the financial burden of owning aircraft.
“Moreover, the proposed disposal will result in annual savings of expenses related to financing and depreciation worth RM90.1 million and RM196.8 million respectively, partially offsetting rental expenses of RM348 million,” MIDF Research said.
“The strong net cash position will also assist its aspirations of being more digitally focused and aid any investments needed.”
The research arm added that in the long run, the proposed disposal will strengthen the ties between AirAsia and Castlelake, paving ways for more opportunities in the field of aircraft leasing.
On another note, Kenanga Research highlighted that AirAsia could be using a major part of the proceeds from Castlelake deal to scale the group’s digital business.
“On its digital transformation front, they are actively engaging with their partners namely Google, Airbus (Skywise) and Palantir to integrate machine learning to their Big data platform to improve airline operations which would lead to cost savings in the future.
“We believe that AirAsia could be using a major part of the proceeds from Castlelake deal to scale its digital business which might transform them into the next ‘Unicorn’ rivalling names like GRAB and Go-Jek in South East Asia which are all asset light.”