Struggling low-cost long-haul airline, AirAsia X is proposing to pay off just 0.5% of its $8 billion debt to its creditors ahead of its slate being wiped clean. The airline said that this is the only way to avoid liquidation, and that the subsequent restructuring will allow it to become profitable once more.
AirAsia X wants a huge amount of debt written off
AirAsia X, the low-cost long-haul arm of AirAsia Group, has outlined a proposal to begin paying down the significant debt it has accrued. The proposal, as seen by Reuters, targets paying down just 0.5% of its massive $8 billion debt and then terminating all existing contracts. This, it says, will allow it to restructure its finances and avoid the airline going bankrupt.
With the 127 page explanatory statement that is being sent to its creditors ahead of a meeting next month, the airline said,
“To avoid a liquidation and to allow the airline to fly again, the only option is for AAX to undertake the proposed debt restructuring.”
The 0.5% payment will be given out of the airline’s operating cash flow one year after its restructuring is complete. The airline further said that, if it were able to achieve earnings before interest, tax, lease rentals, restructuring costs, and depreciation of more than $72 million in the years of 2023 – 2026, 20% of that would be paid to its creditors – except Airbus.
The airline is due to meet with creditors on November 12th to present and discuss this proposal. To pass, the proposal will need to receive a positive vote from creditors who represent more than 75% of its entire debt level. Once approved at the creditors’ meeting, the high court will need to sanction the scheme before the airline can begin its restructuring.
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The struggles of AirAsia X
The pandemic has not been kind to AirAsia X. The airline recently reported a record quarterly loss of $5.9 billion for the period ending June 30th. Due to its entire business being built on international operations, its flights have been suspended since the start of the pandemic, leaving the airline unable to bring any money in. This made for the ninth quarter in a row where the airline posted a significant loss.
However, this loss was much higher than it had been in the same quarter last year. In 2020, the quarter emerged with a loss of 305 million ringgit ($73 million). The reason for this was an accounting provision of 23.8 billion ringgit ($5.7 billion) to creditors with which it was in default.
At the time, the airline said that,
“The contractual liabilities for which the provision is made will be waived upon the successful completion of the proposed debt restructuring exercise.”
Should today’s proposal be accepted by the creditors, most of that massive loss could be wiped from the books. But it’s not a given that they will accept, considering the difficult position many of those creditors themselves will be in at present after the punishing last 20 months.
AirAsia X is also said to be in negotiations with lessors of as many as 29 aircraft. Negotiations center around the lessors either accepting a termination of contract on the leased planes, or continuing to lease them to AirAsia X on new terms. The current leasing market is historically low, with aircraft available for much less than usual – AirAsia is undoubtedly looking to cash in on this.
AirAsia X is one of several Asia-Pacific airlines that have needed to restructure their debts as a result of the pandemic. Others include Thai, Virgin Australia, and Malaysia Airlines. Strict lockdowns and lengthy border closures have made it challenging for these carriers to survive on their own, and although things are improving day by day, the situation in APAC is still very difficult.