AirAsia  X  has  entered  into  a  Purchase  Agreement  with  Airbus  S.A.S  to purchase  55  A330neo  aircraft  for  an  estimated  US$15.2bn  (based  on  list price).  The  delivery  will  start  from  2018  onwards  (until  2026)  with  two aircraft  followed  by  five  aircraft  in  2019.  These  aircraft  are  part  of  the Company’s future fleet and hub expansion, as well as replacement aircraft from the existing fleet and orders.  (Source: Bursa Malaysia)

Comment:  While this is  part of  the  group’s  expansion plans as well  as to cater for their inroads into Thailand and Indonesia, in the nearer term, we are more concerned on its outlook sustainability as well as its gearing level. As  at  end-September  2015,  AirAsia  X’s  gearing  stood  at  2.3x.  Key  risks includes its ability to source for competitive funding for scheduled deliveries over the next couple of years. For 2015, AirAsia is likely to use operating leases  for  its  aircraft  deliveries  to  reduce  up-front  cash  requirements. Maintain SELL with a fair value of RM0.45. Upside risks include cheaper jet fuel price which will lift some burden off its operational costs.

Source: Affin Hwang Capital Research - 16 Dec 2014