Disputed reports suggest AirAsia sought government support, contradicting co-founder Tony Fernandes’ public denials of any bailout discussions.
AirAsia co-founder Tony Fernandes held talks with Malaysia's finance ministry officials two weeks ago to discuss potential government support for the airline, three people with knowledge of the matter said.
Fernandes confirmed the meeting occurred but framed the interaction differently in an exclusive interview with Reuters on Friday, stating that discussions with officials from Malaysia's finance and transport ministries took place during the week starting September 28.
I meet with government officials all the time...just because I meet them doesn't mean we're talking about financial assistance.
Two of the sources said the government might back AirAsia's fundraising efforts if the airline agreed to proposed conditions, which remain under discussion.
Representatives from Alton Aviation Consultancy also attended the meeting, and the finance ministry hired Alton to assess the funding needs of the loss-making carrier, according to two of the people with knowledge of the discussions and a previous Reuters report.
Fernandes said the talks centered on aviation-related expenses like fuel and airport charges and did not involve financial assistance.
He said he had not approached the government for help and that officials had not offered support or expressed worries to him regarding AirAsia's funding.
Malaysian Transport Minister Anthony Loke addressed the situation at a press conference on Monday. He said no meetings with AirAsia had taken place in the previous two to three weeks, adding that other transport ministry officials had not met with the carrier either.
They (AirAsia) may have had discussions with the Ministry of Finance. These airlines do have regular meetings with the government.
Government worries about the financial stability of Malaysia's largest domestic carrier are reflected in the talks. These concerns follow a spike in jet fuel prices.
Financial pressures mount
The airline has been hit by soaring jet fuel costs. In the second quarter, these costs jumped 66% from the prior period to reach an average of $183 a barrel. The increase stems from the US-Israeli war on Iran.
AirAsia reported a net loss of 831 million ringgit for the second quarter ended June 30. Higher jet fuel expenses and foreign-exchange losses totaling 331 million ringgit drove the deficit.
The carrier held cash and bank balances of 954 million ringgit as of June 30. Its current liabilities stood at 18.4 billion ringgit.
AirAsia's stock has dropped over 70% in value this year. Shares were trading 5% lower on Monday afternoon following the conflicting reports.
Market dominance and risk
Officials worry that AirAsia's fragile finances could hurt air connectivity, tourism and related businesses, including state-linked airport operator Malaysia Airports Holdings Berhad, two of the people said.
AirAsia controls about 60% of Malaysia's domestic aviation market. It employs 26,000 people, according to Fernandes.
The meeting followed a Reuters report last month. That report stated authorities had queried Malaysia Airlines and Batik Air about absorbing AirAsia's domestic market share as part of scenario planning to monitor the carrier's financial health.
AirAsia's shares dropped up to 21% to touch near four-year lows the day after that earlier report.
What we know
- Fernandes met finance and transport ministry officials in late September.
- Alton Aviation Consultancy representatives attended the meeting.
- Jet fuel costs rose 66% in the second quarter.
Still unclear
- Details of the proposed conditions for government backing.
- Whether the government will ultimately provide support.
- The exact outcome of the meeting between Fernandes and finance officials.
Malaysia's finance ministry refused to comment, and Alton did not reply to requests for information.
Fernandes said he was "100%" confident AirAsia could navigate the situation without state assistance, comparing the current circumstances to the pandemic era.
The big difference between this and COVID is we can actually fly.
He said the period is difficult for the industry.
Obviously, like every airline in the world, we are telling government that this is a tough period.
Despite his confidence, Fernandes left the door open to state aid, noting that AirAsia would accept assistance if any government in its operating countries offered it.
We will never say no to it. We would be foolish to do so.
Fernandes said he had previously asked the government to help the airline secure loans from Malaysian banks, adding that he continues to seek this support because he favors local-currency loans with superior terms and interest rates.
The carrier aims to raise as much as $1 billion in international debt markets and is also looking for 700 million ringgit in local credit facilities, mainly to refinance existing debt.
Fernandes said AirAsia was budgeting for 12 months of high oil prices, noting that demand remains strong with load factors exceeding 80% despite jet fuel costs reaching $200 a barrel.
He warned that extreme prices would eventually impact passengers.
At some point, it will create demand destruction. I'm not sure where that point is.
Fernandes expects the $1 billion fundraising to complete between December and February.
