AirAsia X Cutting Indonesia Arm

Embattled Asian low-cost airline AirAsia X is verging on the brink of collapse and is shutting down its Indonesian arm in an attempt to cut costs and save the wider business.  AirAsia X needs more than US$100 million to avoid liquidation. But the question is, from whom or where is that money going to come from?

“We have run out of money,” AirAsia X deputy chairman Lim Kian Onn told Malaysian media outlets on the weekend.

“Obviously, banks will not finance the company without shareholders, both old and new, putting in fresh equity. So, a prerequisite is fresh equity.”

The end of the road for Indonesia AirAsia

People familiar with AirAsia will know there’s AirAsia and various iterations of AirAsia. The original AirAsia, formally known as AirAsia Berhad and helmed by Tony Fernandes, is based in Malaysia. Over the years, various affiliate airlines have spun off the Malaysian mothership. They share the AirAsia name and branding but are based elsewhere and separate corporate entities. The original AirAsia typically has a significant stake in the affiliate AirAsia airlines.

Operating out of Indonesia is Indonesia AirAsia. Indonesia AirAsia is a low-cost airline based in Tangerang, Indonesia. It operates scheduled domestic, international service.  In happier times, Indonesia AirAsia X also flew scheduled long-haul international flights from Bali’s Ngurah Rai International Airport. Indonesia AirAsia X closed its final cabin door in early 2019.

AirAsia Berhad has a 49% stake in its Indonesian affiliate. Indonesian law prevents foreign businesses from majority owning a local airline. That saw a prominent Indonesian business, Fersindo Nusaperkasa, take a 51% stake in Indonesia AirAsia.

Low-hanging fruit for the Malaysian mothership

AirAsia’s Indonesian operations never really scaled up and presented as low hanging fruit in the scramble to cut costs and save broader interests. Before the travel downturn, Indonesia AirAsia flew to about 15 domestic and six international destinations, with a fleet of around 30 Airbus A320-200 planes.

The airline achieved a degree of notoriety in 2014 when an Airbus A320 flying from Surabaya to Singapore crashed into the Java Sea, killing the 162 passengers and crew onboard the flight. That crash was later attributed to pilot error following a non-critical malfunction in the rudder control system. The incident did nothing for Indonesia AirAsia’s reputation and civil aviation safety in Indonesia generally.

Serious ongoing liquidity issues at AirAsia

AirAsia’s problems won’t just be solved by shutting down their Indonesia arm. They face a serious cash crunch. They have immediate liabilities approaching $500 million. As Lim Kian Onn indicates, there’s no money to pay the bills. Over the next decade, there’s something like $14 billion in liabilities due – aircraft leases, contracted maintenance, new orders, and the like.

“There are many lessors, some very big ones too,” said Lim Kian Onn. “We have been talking to them for two months. All of them are understandably upset.

“There are analysts and news reports that suggest creditors, particularly lessors, have no choice but to agree to our scheme. That’s not true. They have choices.”

Meanwhile, in addition to closing down Indonesia AirAsia and dealing with angry aircraft lessors, AirAsia Berhad has written off its 49% stake in Thai AirAsia. That airline is no longer part of AirAsia Berhad’s “restructuring plans.” Just a week ago, AirAsia’s Japan-based affiliate airline closed with immediate effect.

What do you think? What’s the future for AirAsia? Has 2020 finally clipped the wings of the ever-ambitious Tony Fernandes? Post a comment and let us know.


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