Indonesia Malaysia Thailand

AirAsia co-founder Tony Fernandes held meetings with Malaysian government officials during the week beginning September 28, as the airline faces heavy fuel costs and seeks to refinance debt. People familiar with the matter said the discussions included possible government backing for fundraising, while Fernandes said they concerned aviation costs rather than financial assistance.

Three people with knowledge of the matter said Fernandes met Finance Ministry officials about two weeks ago, reflecting government concern over the financial health of Malaysia’s largest domestic airline. Two of those people said the discussions considered whether the government could support AirAsia’s fundraising if the carrier accepted conditions that were still being negotiated. Reuters was unable to establish what those conditions were.

Fernandes, who is also an adviser to the airline, told Reuters in an exclusive interview on Friday that he had requested meetings with officials from both the finance and transport ministries. He said the conversations focused on expenses affecting airlines, including airport charges and fuel costs.

“Obviously, like every airline in the world, we are telling government that this is a tough period,” Fernandes said.

He denied that financial assistance had been discussed. “There have been no discussions on financial assistance with the government,” he said, adding that meetings with officials did not necessarily concern state support.

Fernandes said he had neither sought government help nor been approached by officials with concerns about AirAsia’s funding position or an offer of assistance. He said he was “100%” confident the airline could manage the current period without state aid, as it had during the pandemic.

However, he said AirAsia would not refuse assistance if it were offered by governments in markets where it operates, including Malaysia, Thailand and Indonesia. “We will never say no to it. We would be foolish to do so,” he said.

Fernandes said he had previously asked Malaysia’s government to assist AirAsia in obtaining loans from Malaysian banks instead of borrowing overseas. The airline still wanted that form of support, he said, because it preferred loans in local currency with more favourable rates and terms.

Government monitoring airline’s position

Representatives of Alton Aviation Consultancy attended the meeting with government officials, according to two people familiar with the discussions. Reuters had previously reported that the Finance Ministry hired Alton to assess the funding needs of loss-making AirAsia. The ministry declined to comment, while Alton did not respond to requests for comment.

Transport Minister Anthony Loke told a press conference on Monday that neither he nor other Transport Ministry officials had met AirAsia over the previous two to three weeks. He said the company may have spoken with the Finance Ministry, noting that airlines regularly meet government representatives.

Loke made the comments after Reuters reported on the meeting between Fernandes and the Finance Ministry. AirAsia shares were down 5% in Monday afternoon trading.

The airline has been under pressure from higher jet fuel prices, which rose 66% in the second quarter from the preceding quarter to an average of $183 a barrel, according to the report. The increase stemmed from the US-Israeli war on Iran.

Last month, Reuters reported that Malaysian authorities had asked Malaysia Airlines and Batik Air whether they could take on AirAsia’s domestic market share as part of scenario planning while the government monitored the carrier’s finances. AirAsia shares dropped by as much as 21% to near four-year lows the following day.

Two people said the government’s concern reflects the potential effect of a weaker AirAsia on air connectivity, tourism and related businesses, including state-linked airport operator Malaysia Airports Holdings Berhad. Fernandes said AirAsia accounts for about 60% of Malaysia’s domestic aviation market and employs 26,000 people.

As of June 30, AirAsia had 954 million ringgit ($233.65 million) in cash and bank balances, alongside current liabilities of 18.4 billion ringgit.

Fundraising and fuel-price outlook

The government meetings came after a September 28 town hall at AirAsia’s headquarters, where Fernandes told employees that the airline would overcome its current difficulties, according to two people. Fernandes said he told staff that airlines broadly were facing a difficult period and that AirAsia had endured challenging times before.

“We’ve been through many tough times before. We will come out of it stronger,” Fernandes recalled saying. “The big difference between this and COVID is we can actually fly.”

At a September 18 press conference, Fernandes said there had been no government discussions, that AirAsia had “strong liquidity” and that it did not need a “rescue, bailout, whatever.”

AirAsia recorded a net loss of 831 million ringgit ($204 million) for the quarter ended June 30. Higher jet fuel costs and foreign-exchange losses of 331 million ringgit contributed to the result.

The carrier is seeking up to $1 billion through international debt markets and 700 million ringgit in local credit facilities, mainly to refinance existing debt. Its shares have lost more than 70% of their value this year.

Fernandes said he expected the $1 billion fundraising to be completed between December and February. Half of the money would be used to refinance costly loans, with the remaining funds intended for working capital and the settlement of what he described as “extended liabilities.”

AirAsia is budgeting for 12 months of elevated oil prices, Fernandes said. The airline had not yet seen weaker demand, with its load factor remaining above 80% even when jet fuel reached as much as $200 a barrel.

“Above $200, it hasn’t been tested yet,” he said. “At some point, it will create demand destruction. I’m not sure where that point is.”