A contentious restructuring plan at AirAsia X could cost Airbus billions, according to the aircraft manufacturer. AirAsia X needs radical financial surgery to keep flying. As part of that, the airline wants to walk away from its purchase commitments with Airbus. According to Airbus, that could end up costing it more than US$5 billion.

Embattled AirAsia X has 138 aircraft on order at Airbus

On Tuesday, Bloomberg's Hadi Azmi and Charlotte Wood reported that Airbus had lodged documents in Malaysia's High Court outlining the extent of their financial exposure if AirAsia X goes under or walks away from its commitments.

AirAsia X is a long-haul budget airline based in Malaysia and a sister company of AirAsia. The airline has been operating for 13 years and flies a fleet of 23 Airbus A330-300s. Presently, all but one of those planes sit parked.

According to Airbus data for November 2020, AirAsia X had 138 planes on order at Airbus. This includes ten A350-900s, 78 A330-900s, 20 A330-300s, and 30 A321neos. The orders are worth more than $5 billion to Airbus.

But AirAsia X says it is facing severe liquidity constraints. In the 3rd quarter of 2020, AirAsia X posted a loss of US$271 million. Prospects for this quarter are no brighter.

"An imminent default of contractual commitments will precipitate a potential liquidation of the airline," warned AirAsia X in early October.

"A major debt restructuring and a renegotiation of its financial obligations are pre-requisites for any raising of fresh equity which will be required to restart the airline."

Airbus heavily exposed in the event of an AirAsia X colllapse

AirAsia X isn't the first airline to face difficulties and undergo a debt restructuring this year. But few such airlines have such extensive orders with aircraft manufacturers.

In an affidavit filed, Airbus says its total exposure to AirAsia X is around $12 billion, or about 75% of the airline's total debt.

“AAX has ordered, and Airbus has already built or substantially built, seven A330neo aircraft which are currently in the inventory,” said Airbus’s Asia-Pacific Head of Region Anand Stanley in the affidavit.

According to a Reuters report, Airbus has concerns allowing AirAsia X to walk away from its debts will undermine the A330neo program. AirAsia X's A330neo orders make up about 25% of all orders for the type. Airbus argues canceling the order will directly impact its bottom line.

Airbus isn't the only creditor underwhelmed by AirAsia X's debt restructuring plan. Earlier this month, AirAsia X admitted several aircraft lessors had intervened in the restructuring proceedings to register their objections to the scheme.

Aircraft lessors also on the hook at AirAsia X

Since the start of the 202 travel downturn, AirAsia X has asked its various aircraft lessors for a lease holiday. Lessors on the hook include BOC Aviation and ICBC Leasing. In September, BOC Aviation sued AirAsia X for $23 million over breached lease agreements involving four planes.

“One unidentified lessor says they value their relationship with AirAsia X. However, the depth and breadth of that relationship does not extend to, say, letting the airline skip lease payments for three months,” a FlightGlobal report said earlier this year.

The level of exposure held by the leasing companies is small beer compared to the Airbus exposure. That gives Airbus a lot of sway in the matter before Malaysia's High Court. Ultimately, the court will decide the details of any AirAsia X debt restructuring.

The airline is in a bind. It needs to raise fresh capital and has a plan to do so. The problem for AirAsia X is that its capital raising hangs on a successful debt restructuring scheme.

Judging by the current Airbus position, the aircraft manufacturer will not let AirAsia X walk away from its commitments without a fight.

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