AirAsia X Sued Over Late Lease Payments

AirAsia X and a wholly-owned subsidiary company are facing a multi-million dollar lawsuit from an aircraft leasing company. It is alleged AirAsia X and its subsidiary, AAX Leasing Two Ltd, owe BOC Aviation nearly US$23 million after breaching lease agreement obligations concerning four aircraft.

BOC Aviation is suing AirAsia X over breaches of aircraft lease agreements. Photo: Getty Images

This latest blow against AirAsia X raises further questions about its on-going viability.

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BOC Aviation makes a move against AirAsia X

BOC Aviation is a Hong Kong-listed global aircraft operating leasing company. It has been doing business with AirAsia X since 2014, when it first leased four Airbus A330-300s to the airline. That lease agreement was revised in December 2018.

According to reports, London legal firm Morgan, Lewis & Bockius UK filed a claim in the High Court of Justice in the Business and Property Courts of England and Wales on 19 August 2020. BOC Aviation says AAX Leasing Two Ltd has breached obligations under the 2018 lease agreement. Further, AirAsia X has allegedly breached obligations under four guarantees to lease agreements.

BOC Aviation leased four A330-300s to AirAsia X. Photo: Getty Images

AirAsia X in on-going strife throughout 2020

As far back as February, AirAsia X was feeling the pain from the travel downturn. Its sister AirAsia airline plies domestic as well as international routes. But AirAsia X flies international routes only. It was hit hard by international border closures and a steep decline in demand for international travel. In February, Simple Flying reported that AirAsia X was asking various lessors, BOC Aviation included, for a lease payment holiday.

“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,” said the report.

Both AirAsia X and the broader AirAsia Group have been impacted by the drop in revenue this year. The AirAsia X fleet of 23 Airbus A330-300s remain in ‘hibernation.’ The airline flew just 2,291 passengers in the second quarter of 2020. AirAsia X reported an operating loss of US$130 million for the first quarter of 2020. More recently, the airline reported a loss of US$77 million for the second quarter. Reports suggest AirAsia X is trying to sell two A330s to raise cash.

Reports suggest AirAsia X is trying to sell some A330s to raise cash. Photo: Getty Images

Does AirAsia X have the upper hand when it comes to leases?

Despite this, some experts are arguing that AirAsia X may have a few cards left up its sleeve when it comes to negotiating aircraft lessors.

“AirAsia X is really struggling,” said Edward Clayton, a Malaysia-based PwC partner in an OAG webinar last week. But he also argued that AirAsia X was in a reasonably strong position when it came to retaining their leased planes.

AirAsia X and other airlines can tell the lessors that they can’t pay. The lessors have nowhere to go as there isn’t anyone else that’s going to lease the planes. Mr Clayton said it was not in any lessor’s interest to drive an airline into bankruptcy right now.

“There’s a waterfall of pain here, and the airlines are not at the bottom. It goes beyond them to both the lessors and the banks that lend to the lessors. They need the airlines to survive in order to come out the other side.”

Notwithstanding that, BOC Aviation’s claim against AirAsiaX and AAX Leasing Two Ltd is shaping up to be the largest legal action to date concerning aircraft leases and breaches of them. It’s one to watch.