AirAsia shares fall 18% as auditor raises ‘going concern’ doubts

Shares in AirAsia fell by almost a fifth on Wednesday after the Malaysian airline’s auditor said coronavirus had cast “significant doubt” on the company’s ability to continue as a going concern. 

“The travel and border restrictions implemented by countries around the world has led to a significant fall in demand for air travel which impacted the group’s financial performance and cash flows,” Ernst & Young said in a stock exchange statement on Tuesday.

Ernst & Young also highlighted that in the 2019 financial year, AirAsia’s liabilities exceeded current assets by RM1.84bn ($430m) and the carrier owned by tycoon Tony Fernandes registered a net loss of RM283m. 

AirAsia stock fell as trading resumed after a halt that lasted until early afternoon, closing down 18 per cent.

“It’s quite clear globally that for privately owned airlines, this is an exceptionally tough challenge. They don’t have as much government support to fall back on,” said Paul Yong, equity analyst at DBS, pointing to struggling peers such as Virgin Australia, which has collapsed into administration.

AirAsia said in a stock exchange filing on Wednesday that criteria had been triggered for it to be categorised as a financially distressed company, which would mean it had to produce a business improvement plan. However, it said it would avoid that designation for now under a 14-month relief period extended by the Malaysian bourse to companies hit by the virus crisis.

Mr Fernandes, an English-educated Malaysian of Indian descent, bought AirAsia from the Malaysian government in 2001 for less than a dollar and built it into one of south-east Asia’s biggest carriers. But even before the coronavirus outbreak the airline’s India and Indonesia units were struggling financially, Mr Yong noted.

Airlines and tourism have been hit particularly hard by the pandemic, with companies in both sectors around the globe struggling as countries shut borders and implemented strict distancing measures to try to contain the spread of the virus. 

The global air transport industry is set to lose $84.3bn in 2020 with net profit margins contracting 20 per cent, the International Air Transport Association said last month. “Financially, 2020 will go down as the worst year in the history of aviation,” Iata said.

The budget carrier on Monday reported a first-quarter loss of RM803.8m, its largest since listing in 2004.

AirAsia said in its 2019 financial statement, published by the stock exchange on Tuesday, that Covid-19 had “significantly affected the group’s operations”. But it added that after having partially resumed activity in June, it “expects the business operations to gradually return to the normal operations level by early 2021”. 

The company said its existing lenders had rolled over facilities to help it shore up liquidity. It added it planned to raise up to RM1.4bn in capital to strengthen its equity base and liquidity if necessary,

Beyond dealing with coronavirus, the Malaysian airline was this year pulled into a UK bribery investigation of Airbus.

The UK’s Serious Fraud Office published details of its probe in which individuals associated with Airbus were found to have paid bribes to secure deals with AirAsia and its long-haul arm AirAsia X.

The airline has said it “vigorously rejects and denies” any and all allegations of wrongdoing.