AirAsia X (AAX) creditors have agreed to restructuring that will see it receive just 0.5% of debts owned, and its existing contracts cancelled. AAX has also reached a deal with Airbus to reduce its order for 78 A330neo widebody planes and 30 A321XLR narrowbodies to 15 and 20 respectively. The 0.5% of debt owed to creditors will be paid from operating cash flow one year after the restructuring goes into effect. If AAX were to garner more than RM300m in its annual earnings before interest, tax, depreciation and amortization, lease rentals and restructuring costs during the 2023-2026 financial years, all creditors except Airbus would be entitled to 20% of those earnings. This is undoubtedly a very positive development for the Group and shareholders, very much less so for creditors of all forms. We upgrade our call on AAX to Neutral. We keep valuations and financial forecasts under review however, pending a meeting with management, though we note upsides now appear to be more encouraging following this successful debt restructuring and recapitalization exercise with RM500m in new equity funding coming in to provide sufficient capital to restart its operations when international borders reopen.

• Scheme creditors meetings. AAX which held three separate meetings with its scheme creditors on Friday (Nov 12) to vote on its plan to restructure RM33.65bn of debts, have received 100% support from Class A and C creditors, and 97.6% of Class B creditors. Class A creditors include airport operator Malaysia Airports Holdings Bhd and financial institutions (RM485.24m), Class B creditors include engine suppliers, lessors, travel agents and passengers (RM14.14bn). The sole Class C creditor was Airbus (RM19.03bn). The creditors have given the go-ahead for AAX to write down their dues totaling RM33.48bn by 99.5% to RM168m. AAX will have no gearing upon completion of the debt restructuring exercise.

• Outlook. Following completion of the debt restructuring scheme, AAX will proceed to implement a fund raising exercise to raise up to RM500m in new equity funding from existing and new investors to provide sufficient capital to restart operations when international borders reopen. We expect demand for international air travel to pick up as countries‟ travel restrictions continue to loosen, such as in the UK (only a pre-booked lateral flow test before the end of day 2 of passengers‟ arrival). The US‟s reopening to vaccinated international travelers this month should also contribute to increased international air travel. For Malaysia, the National Recovery Council (NRC) has proposed the country‟s borders be reopened to foreign visitors on 1st Jan 2022 to countries with high vaccination rates, boding well for AAX. We view these developments positively. We hold on assessments for now pending a meeting with management though we note upsides now appear to be more encouraging.

Source: PublicInvest Research - 15 Nov 2021