Today news regarding AirAsia to stop flight until at least April 21st 2020, and if you don't know, I hold MAJORITY of my portfolio in AirAsia, and all my friend immediately forwarded me this news and be like "GG LAH AIRASIA TOMORROW 0.50, HAILAT LA YOU..".. 

Will AirAsia really drop to RM0.50 tomorrow? I don't know to be honest. But does that news makes me or any other person that holds AirAsia want to sell tomorrow or anytime soon? From my personal perspective as a long term investor in AirAsia, Nope not even a slight bit.

2019 was a disastrous year for AirAsia, having its share price plunged more than 70% from a peak of RM2.90 as of April 2019 to RM0.73 as of 26th March 2020. Not to mention that it even fall to a lowest point of RM0.52 last week and only recovered after Tony Fernandes was reinstalled into the board. 

Too many things happened to AirAsia between 2019 and 2020, which were:

1) Mandatory Implementation of MFRS16 in 2019 causing higher depreciation reporting

2) Selling off 25 aircrafts for Rm3.22 billion to Castlelake," to avoids residual risk and allows us to return cash to shareholders and invest in our new digital business" Fernandes said. 

3) Special dividends of 80 cents as a result of the aircraft disposal

4) Non-compliance fine by Mavcom twice (Rm200k and RM2million) for charging its customers a processing fee when they purchased air tickets via credit cards or online banking.

5) Finally, the biggest one which is Covid-19. 

First, since AirAsia sold off most of their planes and started leasing planes, MFRS16 which require leasee under new standard to report higher depreciation in leased assets. As a result, AirAsia only reported ONE quarter in black (4Q19) where the other 3 quarters are in red, despite a huge increment in revenue. 

The most important parameter to gauge an aviation company is its CASH FLOW. Most low-cost carriers went bankrupt because they did not operate their cash flow well. For AirAsia, you can see that after they sold off their aircraft, they managed to bring their gearing ratio up from 0.53 to 0.24. By leveraging that, AirAsia were able to maintain its healthy cash flow throughout 2019. What About 2020? Covid-19.

 I think everyone know how the Covid-19 impacts the airline business as the virus is extremely contagious, globally all aviation business are expected to have their load factor (amount of capacity/seat utilized by airplanes) lower down to 80%. AirAsia's 2019 load factor was 85% and even a 1% load factor decrease will impact an aviation's business by a big margin, what about a 5% drop? 

Besides, since AirAsia has sold most of its airplanes, it is still required to pay leases to the lessors, pay aircraft parking fees to MAHB, employees wages and other charges. All these negative news has diluted AirAsia's share price down around 80%. Ok lah all bad news only.. how about good news? Like oil price? AirAsia confirm benefit from oil price ma...

Actually, AirAsia don't really benefit from oil price if they are not flying, and moreover they hedge 72% of their oil at US$60.22 for Financial Year 2020. So it is actually more like a bad news to them because oil price is around US$24 per barrel now.

All these bad news, why am I still holding AirAsia? Shouldn't I just sell it? Its P/E is negative, ROE is negative, prospects is bad, Why?

One answer, undervalued. Fundamentally speaking, AirAsia is a solid company in the aviation business. It only suffer much losses in 2019 mainly because of higher depreciation reported. And its revenue for 2019 has been an all-time-high, meaning that it was able to keep its capacity growth increasing, which is really important for a low-cost carrier aviation business. 

We have all witnessed AirAsia's share price crashes down in the past few years, but it all came back right away after the incident subsided. "This time its different!". Yes it is different, AirAsia might not be able to survive this if the disease doesn't settle by this first half of 2020. But what if it does? Do Malaysia governments will really take no measure and let AirAsia collapse as it is? Is Tony Fernandes stupid enough to let his hard-built aviation business to go bust? 

Black swan is rarely seen, and I am not letting it go this time!

Thank you for reading.

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