AirAsia X seeks debt help with flights unlikely until 2021

AirAsia Group Bhd.’s long-haul arm said it needs to reach agreements with major creditors to restructure outstanding debt as it faces “severe liquidity constraints” that threaten its ability to resume flying and continue as a going concern.

The warning came in an exchange filing Wednesday, in which AirAsia X Bhd. also reported a net loss for the three months ended June 30 of 305.2 million ringgit ($73 million), worse than a 207.1 million ringgit deficit a year ago. Sales tumbled 91% to 91.4 million ringgit.

“In the short term, the company will need to seek agreement with major creditors to restructure outstanding liabilities, which have accrued during the period since the start of the Covid-19 pandemic, in order to continue as a going concern,” AirAsia X said in the filing.

Securing support from aircraft lessors, maintenance service providers and financial institutions is necessary for the restart of scheduled flights on a staggered basis early next year and a return to profitability, it said. The Malaysia-based budget carrier hasn’t been able to operate any of its usual international passenger services bar a few cargo and charter flights to help repatriate people stranded by the coronavirus.

Parent AirAsia has been considering strategic options, including bringing in investors to shore up the unit’s finances, integrating it with the broader group or even shuttering it, people familiar with discussions have said. Auditor Ernst & Young said last month there may be “significant doubt” over AirAsia X’s ability to continue as a going concern based on its 2019 financial report.

AirAsia X’s operations have been suspended since March 28 as tight border controls, quarantine measures and a reluctance to travel have devastated global aviation, particularly for carriers that are dependent on international routes. The International Air Transport Association doesn’t expect a full recovery before 2024.

Hibernation Mode

AirAsia X has said that it’s actively engaging with business partners and creditors to reschedule payments and renegotiate contracts to ensure enough cash for operations when demand recovers. It plans to apply for a state guaranteed loan of up to 500 million ringgit and is aiming to operate a leaner fleet size. That will involve returning excess aircraft to lessors.

The long-haul airline is the biggest customer of Airbus SE’s A330neos. It expects to remain in “hibernation mode” until travel restrictions ease, although maintains demand should pick up toward the end of 2020. The company has deferred delivery of some A330neos. It has 78 of the aircraft on order, according to Airbus’s website.

Some countries are at least moving to open their borders. Singapore and Malaysia, for example, have already eased restrictions for essential and business travel.

Read more: Raucous Crowd in Singapore Shows Anger at China Travel Rules

Prior to the outbreak, AirAsia X flew to places such as Australia, China, India and Saudi Arabia. It’s also the only Malaysian airline that served the U.S.—from Kuala Lumpur to Hawaii via Osaka. In November, the Federal Aviation Administration downgraded Malaysia to so-called Category 2, barring its carriers from adding any more flights to North America.

AirAsia X was already struggling pre-pandemic, posting losses for six out of the seven quarters through December 2019.

In the April-June period during the thick of the first virus wave in Asia, it carried only 2,291 passengers versus 1.5 million the same period of 2019. It also only operated 16 scheduled flights, as compared to 4,824 in the same quarter of last year.

Parent AirAsia on Tuesday reported similarly dismal figures—a net second-quarter loss of 992.9 million ringgit that was its worst ever.