AirAsia co-founder Tony Fernandes met with officials from Malaysia’s finance ministry two weeks ago to discuss potential government support for Southeast Asia’s largest low-cost airline, said three people with knowledge of the matter.
The talks reflect growing government concerns about the financial health of the country’s largest domestic carrier following a spike in jet fuel prices, the people said.
Discussions centred on the prospect of the government backing AirAsia’s fundraising efforts provided the airline agreed to proposed conditions, which remain under discussion, two of the people said. Reuters could not immediately determine details of the proposed conditions.
Fernandes, speaking for the airline as its co-founder and adviser, told Reuters in an exclusive interview on Friday that he had met with officials from Malaysia’s finance and transport ministries during the week starting September 28 at his request.
He said the discussions focused on aviation-related costs such as airport charges and fuel, not financial assistance.
“Obviously, like every airline in the world, we are telling government that this is a tough period,” he said.
“There have been no discussions on financial assistance with the government,” Fernandes added. “I meet with government officials all the time…just because I meet them doesn’t mean we’re talking about financial assistance.”
He said he had not approached the government for help, and the government had not raised concerns with him about AirAsia’s funding or offered support.
Fernandes said he was “100%” confident AirAsia could navigate the situation without state assistance, as it had during the pandemic.
But Fernandes said AirAsia would not turn away help if offered from any government in the countries where it operates, including Malaysia, Thailand and Indonesia. “We will never say no to it. We would be foolish to do so,” he said.
He added that he had previously asked the government to help the airline secure loans from Malaysian banks rather than borrowing overseas, and still sought such support as he preferred local-currency loans with better interest rates and terms.
Representatives from Alton Aviation Consultancy, which Reuters previously reported the finance ministry has hired to assess loss-making AirAsia’s funding needs, also attended the meeting, two of the people with knowledge of the discussions said.
Malaysia’s finance ministry declined to comment. The transport ministry and Alton did not respond to requests for comment.
The airline has been hit by soaring jet fuel costs that surged 66% in the second quarter from the prior quarter to an average of $183 a barrel, stemming from the US-Israeli war on Iran.
The meeting followed a Reuters report last month that Malaysia’s government had asked Malaysia Airlines and Batik Air whether they could absorb AirAsia’s domestic market share as part of scenario planning while authorities monitor the carrier’s financial health. AirAsia’s shares fell as much as 21% to near four-year lows the next day.
The government has grown increasingly concerned about AirAsia’s financial position because of the knock-on effects its weakness would have on air connectivity, tourism and related businesses such as state-linked airport operator Malaysia Airports Holdings Berhad, said two of the people.
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AirAsia controls about 60% of Malaysia’s domestic aviation market and employs 26,000 people, according to Fernandes. The airline had cash and bank balances of 954 million ringgit ($233.65 million) and current liabilities of 18.4 billion ringgit as of June 30.
TOWN HALL
The meeting with government officials followed a company town hall Fernandes held on September 28 at AirAsia’s headquarters, where he told staff that the airline would overcome its current difficulties, two of the people said.
Fernandes said he had told employees it was a tough time for all airlines. “We’ve been through many tough times before. We will come out of it stronger,” he recalled saying. “The big difference between this and COVID is we can actually fly.”
At a press conference on September 18, he said there had been no discussions with the government, the carrier had “strong liquidity” and “we do not need rescue, bailout, whatever.”
AirAsia reported a net loss of 831 million ringgit ($204 million) for the second quarter ended June 30, hit by higher jet fuel costs and foreign-exchange losses of 331 million ringgit.
The airline has said it is targeting up to $1 billion from international debt markets plus 700 million ringgit in local credit facilities, primarily to refinance existing debt. Its stock has lost more than 70% of its value this year.
Fernandes said on Friday he expected the $1 billion fundraising to be completed between December and February, with half used to refinance expensive loans and the rest for working capital and paying off “extended liabilities.”
Fernandes said AirAsia was budgeting for 12 months of high oil prices and had yet to see demand weaken, with the percentage of seats filled above 80% even though jet fuel prices had risen as high as $200 a barrel.
“Above $200, it hasn’t been tested yet,” he said. “At some point, it will create demand destruction. I’m not sure where that point is.”