KEY INVESTMENT HIGHLIGHTS

• Submitted proposals to Bursa in its bid to save AAX

• Proposed huge debt haircuts, share reduction and consolidation

• The debt proposal need to be approved by at least 75% of the total creditors

• AAX is at its existential crossroad

• FY20-21F earnings estimates maintained

• Upgrade to NEUTRAL with an unchanged TP of RM0.05 per share

Bold proposals laid on the table. AirAsia X Berhad (AAX) announced yesterday that it has submitted proposals to Bursa in its bid to save the ailing company. The first part of the proposal is a debt exercise to restructure ~RM63.5b of debts to be reconstituted into an acknowledgement of indebtedness by AAX for a principal amount of up to RM200.0m. Furthermore, it also entails debt waivers, termination of contracts with related parties and conversion of advance payment and placed deposits to travel credits (refer to Table 1). Aside from its proposed debt restructuring, the company also intends to undertake a proposed reduction of 90% of the issued share capital and consolidation of every 10 existing ordinary shares in AAX into 1 AAX share (refer to Table 1). AAX asserts that these proposals are vital for the survival of the Group as well as its ability to remain a going concern, which requires significant concessions from its suppliers, creditors and financiers.

Debt haircut essential to ensure survival of AAX. Recall that, the ~RM63.5b debt amount entails forward capital commitments (such as future lease rentals and aircraft purchase commitments), estimated compensation, penalties arising from early termination of contracts and etc. From this amount, AAX proposes that the debt will be reconstituted into a principal amount of RM200.0m, circa ~0.3% of its original value. The group maintains that the RM200.0m value is an amount that the company’s future operational cash flows may accommodate and is payable annually over a period of up to 5 years.

AAX recent financial standings. To reiterate, based on its 2QFY20 result, AAX’s cash balances and equivalent stood at RM252.03m with OPEX at circa RM220.0m. In addition, zooming in on cash flow level, for the period ended on 30 June 2020, the repayment of lease liabilities is at RM201.27m with interest paid on lease liabilities at RM73.17m. Total lease liabilities stood at approximately RM5.8b. These figures only serve to highlight the group financial woes, pinpointing the fact that without significant debt restructuring exercise, AAX may well become among the casualties of Covid-19 pandemic.

Source: MIDF Research - 7 Oct 2020