Future of AirAsia in 'significant doubt', warns auditor

AirAsia would need around $467 million this year to "stay afloat"

air asia Representational image | Reuters

Trading of shares of budget airline AirAsia on the Bura Malaysia stock exchange in Kuala Lumpur was temporarily halted on Wednesday after auditor Ernst & Young warned the carrier's future was in "significant doubt".

Ernst & Young made the observation in an unqualified audit opinion on AirAsia's earnings for 2019 that was released late on Tuesday. AirAsia on Monday had posted a quarterly loss of $188 million for the three months ending on March 31. It was the worst first-quarter loss for AirAsia since its listing in November 2004. The losses this year have been attributed to disruption caused by COVID-19.

Ernst & Young noted the current liabilities of AirAsia exceeded its current assets by $430 million at the end of 2019. Bloomberg quoted Ernst & Young as noting "The slump in air travel and the carrier’s financial performance indicate existence of material uncertainties that may cast significant doubt on the group’s and the company’s ability to continue as a going concern."

Reacting to the news of the quarterly performance on Monday, AirAsia CEO Tony Fernandes conceded, "This is by far the biggest challenge we have faced since we began in 2001.” Fernandes had indicated AirAsia is in talks for joint-ventures and collaborations for additional investment.

"Last month, South Korean conglomerate SK Group said it was reviewing a proposal to buy a small stake in the airline. In May, AirAsia sent a memo to Malaysian banks seeking to borrow 1 billion ringgit ($233 million)," Bloomberg reported.

Bloomberg quoted K. Ajith, an aviation analyst at UOB Kay Hian Pte in Singapore, as saying AirAsia would need around $467 million this year to "stay afloat". He added the best option would be for the government stepping in "but seeking a rights offering by the company in exchange".

It is unclear how the financial woes of AirAsia could affect the airline's venture in India, AirAsia India. In a call with Credit Suisse in June, Fernandes had noted AirAsia had a good partner in the Tata group, but indicated it could eventually exit the joint-venture in India.