AirAsia X has booked a massive US$5.9 billion loss for the three months ending June 30, 2021. It is an eight-fold increase on the loss in the same quarter last year and the airline's biggest quarterly loss to date.

Provision to cover debt turbocharges the quarterly AirAsia X loss

Part of the AirAsia Group, AirAsia X is a low-cost long-haul airline based in Kuala Lumpur. The airline says in the stock exchange filing they've suffered extensively from the  COVID-19 fallout. AirAsia X has suspended the bulk of its scheduled flight operations since April 2020 and parked the majority of its fleet. In the three months to June 30, 2021, the airline recorded revenues of US$17.25 million.

An accounting provision to cover debt previously defaulted on turbo-charged AirAsia X's quarterly loss.

"The Company has made a provision of RM23.8bil in the current quarter though it should be highlighted that the contractual liabilities for which the provision is made will be waived upon a successful completion of the proposed debt restructuring exercise," AirAsia X said in a Bursa Malaysia stock exchange filing on Monday.

AirAsia X talks with creditors continue

The loss comes as the beleaguered airline attempts to negotiate with creditors in a long-running court-supervised restructuring program. Nearly 12 months ago, AirAsia X said it wanted to restructure $15.5 billion worth of debt, including a $5 billion-plus aircraft order with Airbus.

Creditors holding a minimum of 75% of the unsecured debts must approve any debt restructuring proposal for it to pass.

Recently, Malaysia's AirAsia X Bhd, the listed company behind AirAsia X, said talks with creditors were progressing well and that it hopes to conclude them by the end of October. The airline has reached an agreement with several large creditors, including Honeywell International, Bridgestone Aircraft Tire Company, and Sky High I Leasing Company.

But AirAsia X is asking its many creditors to take a big haircut. Under the terms of the restructuring proposal, the airline wants to end up paying around only about 2% of its $15.5 billion debt - and that 2% repayment would get spread over five years at 2% interest.

If that sounds like a dud deal for creditors, 2% is better than nothing. With AirAsia X on the brink of going out of business, many think creditors will take what they can get.

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Reality bites says AirAsia boss

When AirAsia X first proposed the deal, many creditors strenuously objected, including the largest creditor, Airbus. But 12 months down the track, many creditors are coming around.

"Reality bites," said AirAsia Chief Executive Officer Tony Fernandes last year. "We are in unprecedented times. Should the airline wind up and you get 30 planes, what are you going to do with them? We can all put our heads together and try to save the situation."

"Creditors, including lessors and Airbus, understandably don't want to see the airline fall as they stand to lose a lot. The decision to work with AirAsia X to restructure is to salvage whatever they can," Malaysia-based aviation consultant Shukor Yusof told Reuters.

AirAsia X confirms most creditors wanted the airline to proceed with its restructuring plans. Under the terms of the restructuring plan, talks with creditors must be finalized by next March when orders preventing creditors from suing AirAsia X expire.