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AirAsia Group’s ability to continue as a going concern may be in significant doubt because of the impact the coronavirus is having on the indebted carrier, said auditor Ernst & Young.
Hit by travel restrictions
The airline’s current liabilities already exceeded its current assets by 1.84 billion ringgit ($430 million) at the end of 2019, a year when it posted a 283 million ringgit net loss, said Ernst & Young in a statement to the Kuala Lumpur stock exchange on Wednesday. The financial performance and cash flow have now been further hit by virus-related travel restrictions.
The slump in air travel and the carriers financial performance indicate existence of material uncertainties that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern, said Ernst & Young in its unqualified audit opinion statement.
Covid-19 plunged the aviation industry globally into crisis as border controls and health concerns vaporised demand for air travel. On Monday, AirAsia reported a record quarterly loss of 803.8 million ringgit. It was not until late March and the end of the quarter that the budget airline suspended flights.
‘The biggest challenge’
This is by far the biggest challenge we have faced since we began in 2001, said AirAsia’s Chief Executive Officer Tony Fernandes in a statement Monday.
He said the carrier is in talks for joint-ventures and collaborations that may result in additional investment, and it has also applied for bank loans and is weighing proposals to raise capital.
Last month, South Korean conglomerate SK Group said it was reviewing a proposal to buy a small stake in the airline. In May, AirAsia sent a memo to Malaysian banks seeking to borrow 1 billion ringgit, people familiar with the matter said at the time.
AirAsia needs at least 2 billion ringgit this year to stay afloat, according to KAjith, an aviation analyst at UOB Kay Hian in Singapore.
There’s not a lot of options, and the best one could be the government stepping in but seeking a rights offering by the company in exchange, he said.
An AirAsia representative did not immediately respond to a request for comment. Trading in the company’s shares was halted in Kuala Lumpur on Wednesday.
Despite the warnings, there are signs of improvement with the gradual lifting of restrictions on interstate travel and domestic tourism activities in the countries where AirAsia and its units operate, said Ernst & Young.
Airline’s recovery
The airline’s recovery depends on government policies on travel, discussions with financial institutions and investors, and its ability to address concerns of its liabilities, said the auditor.
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