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Airasia's forex hedge - felicity

Tan KW
Publish date: Thu, 17 Nov 2016, 05:53 PM
Tan KW
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Thursday, November 17, 2016  

 
I am reading some of the articles or even comments that came from analysts or other investors per se. They are saying that the rise in USD against MYR would be bad for Airasia as I am presuming that they think since the aircrafts are bought at USD pricing, it would be bad for Airasia. I am also asking did they read the financial report? As below is the financial report that is extracted from the 2Q16 announcement.


It is clear that a substantial portion of its liabilities are hedged at a low 3.2368 exchange rate. Yes, Airasia will take some losses in forex, but most of them are book numbers - it will be reversed in the event MYR strengthens.

Also, some may think that all transactions for Airasia is in MYR. It is not. They have Renminbi, Thai Baht, USD, AUD, SGD etc. Airasia is not a domestic business only. MYR comprise of perhaps around 40%. Hence, that is already balanced by the hedge.

What about future planes? Other airlines that compete against Airasia face the same thing. So, they will increase price as well - hence evened out. This is not like MAS, SIA, Qatar, Lion Air are buying in their own currencies but Airasia is doing it in USD.

What could even be positive for Airasia is in the event it sells its leasing arm - that is in USD, would even translate to even bigger profits for Airasia and this is real number as I do not think it is even provided for anywhere.
 
 
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http://www.intellecpoint.com/2016/11/airasias-forex-hedge.html

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Discussions
3 people like this. Showing 8 of 8 comments

BN_menang

So USD strengthening not all bad?

2016-11-17 17:56

股海無涯

USD strengthen again MYR definitely is bad for AA, but not as bad as MANY investors read and feel in the financial report. other than borrowing, there is Fuel, MRO Expenses, interest which is paying in USD, which will giving pressure on AA margin. however, with good load factor and reasonable pace of expansion, i do not c the problem as bad as 1-2 years ago. actually other than exchange rate, i am quit positive on other factor.

2016-11-17 18:56

ronnietan

What about the question of the 42% of USD loans not hedged?
Unrealised forex losses are just "book numbers" but when repayments r due, the numbers are real at current RM rates.
RM could be higher then, or lower, no one knows, so we've a scenario at current rates.

2016-11-17 20:40

Air_Asia

When is unhedged USD payment due date? Is it this mth, next mth, next year or ?

Posted by ronnietan > Nov 17, 2016 08:40 PM | Report Abuse
What about the question of the 42% of USD loans not hedged?
Unrealised forex losses are just "book numbers" but when repayments r due, the numbers are real at current RM rates.
RM could be higher then, or lower, no one knows, so we've a scenario at current rates.

2016-11-17 20:44

ronnietan

If sale proceeds from the leasing arm are retained, it would offset the enlarged USD loans.
But what if the proceeds are dividend out for the owners to repay their own loans?
And if BNM remains silent on Tony's application for USD loans, and his AirAsia stake's not increased, will he still sell leasing?

2016-11-17 20:47

MuttonCurry

Wait for results ... insider tells me market may not like the latest news on AWC. Nothing else matters even if by some remote chance AA does better than their last results (which i doubt)

It is still a good counter with rich cash flow ... though

2016-11-17 21:14

Daniel Yap

Good sharing. Home work very important. To all Airasia same boat bro and sis. No worries. U can compare Aax and Airasia previous financial report, the effects on usd strengthen is not that serious. My estimate Aax coming qtr report easily net profit rm50mil-80mil , Airasia estimate net profit on coming qtr report easily can hit rm300mil and above.

2016-11-17 22:23

ronnietan

What about Q4, if USD closes at RM4.40?

2016-11-17 23:55

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