Analysts: New MRO outfit a wise move for AirAsia

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Based at the airline group’s global headquarters RedQ in Sepang, the newly-formed subsidiary will be providing line maintenance, engineering support, component and warehouse services, digital and innovation services for the fleet of aircraft under AirAsia’s group of airlines and potentially other airlines in the region.

KUCHING: Analysts give two thumbs up to AirAsia Group Bhd (AirAsia) forming Asia Digital Engineering Sdn Bhd (ADE), a wholly-owned subsidiary, set to become Asia’s leading provider of engineering services for AirAsia as well as other commercial airlines in the region.

CEO of AirAsia Group Tan Sri Tony Fernandes said the move expands AirAsia’s existing expertise in aircraft engineering and is well positioned to become Asia’s leading data and technology-driven maintenance, repair and overhaul (MRO) service provider for all commercial airlines in the region, starting with the AirAsia group of airlines.

“This new business division provides numerous efficiencies and will leverage off our combined 19 years of experience in operating and maintaining a large fleet of over 250 Airbus A320 and A330 family aircraft,” he said in a statement announcing the move.

“All AirAsia engineers and MRO assets will be consolidated to provide a centralised technical support service for our fleet of aircraft, and potentially for other commercial airlines in the near future also.”

Based at the airline group’s global headquarters RedQ in Sepang, the newly-formed subsidiary will be providing line maintenance, engineering support, component and warehouse services, digital and innovation services for the fleet of aircraft under AirAsia’s group of airlines and potentially other airlines in the region.

ADE will embark on the Industry 4.0 digital transformation journey, embracing the future by leveraging on the latest technologies in automation, big data analytics, predictive maintenance, machine learning and artificial intelligence to effectively increase productivity and efficiency while maintaining a high level of safety, quality and airworthiness of the fleet with a target of 10 per cent reduction in maintenance costs.

An analyst with MIDF Amanah Investment Bank Bhd (MIDF Research) saw that AirAsia spent RM1.32 billion and RM938.37 million in 2019 and 2018 for operating expenses on maintenance and overhaul.

Relatively, maintenance and overhaul accounts for circa 13 per cent of AirAsia Total Operating Expenses.

“We believe this is a good move from the group as it will add to the topline of AirAsia moving forward to,” the analyst said today. “Based on our estimates, the topline potential of the new unit can conservatively reach RM1 billion a year considering the size of previous operating expenses incurred by AirAsia for its maintenance and repair segment.

“However, we believe that the challenging operating environment in the short term will have more bearing to its earnings.”

Moving forward, MIDF Research believed AirAsia will continue to operate in challenging environment amidst ravaging pandemic, border control and other measures that remains unconducive for airline business.

“We are not inputting any potential earnings impact of the new unit as of now, pending further disclosures. To reiterate our forecast, we are expecting a decline across the board, below FY19 level. Hence, we maintain our FY20E/FY21E earnings estimate, whilst maintaining positive earnings estimate FY22E, albeit smaller forecast.

“Going forward, we are uncertain on how the “new norms” will alter consumer demand for air travel even post Covid-19 as everything is up on the air. We believe that there might be possibility of shrinking market size, due to the region economic contraction.

“Operationally, there is a small evidence of potential recovery. Despite this, the odds are stacked against AirAsia and we are not convinced yet on the recovery narrative.”