AirAsia co-founder Tony Fernandes met officials from Malaysia’s finance ministry two weeks ago to explore possible government backing for the region’s biggest budget carrier, according to three people familiar with the matter. The sources said the talks show growing unease within the government about the financial health of the country’s largest domestic airline, which has been hit hard by a sharp rise in jet fuel prices.
Fernandes, who speaks for the airline in his roles as co-founder and adviser, has offered a different account. He told the news agency in an exclusive interview on Friday that the meetings were not about financial help, and he has denied that the airline sought any rescue.
Conditions for government backing remain under discussion
Two of the sources said the government discussed backing AirAsia’s fundraising efforts, but only if the airline accepted proposed conditions that are still being negotiated. Their details could not be established immediately, and no one involved has publicly described what the conditions would be.
The government’s worry, the sources said, centres on the wider effects of the airline’s weakness. Officials are concerned that a struggling AirAsia could damage air connectivity, tourism and businesses linked to the carrier, including the state-linked airport operator Malaysia Airports Holdings Berhad.
Fernandes denies seeking financial aid from the state
Fernandes said he met officials from the finance and transport ministries during the week beginning September 28, and that he had requested those meetings himself. He said the agenda covered aviation expenses such as airport charges and fuel rather than any form of financial assistance.
He told reporters that the airline, like every carrier worldwide, was warning the government that the current period was difficult. He stressed that he had not asked the government for help, and that officials had neither raised concerns about AirAsia’s funding nor offered support. He also said he was 100% confident the airline could weather the situation without state aid, as it had during the pandemic.
Even so, Fernandes said AirAsia would accept help if any government in the countries where it operates, including Malaysia, Thailand and Indonesia, offered it. He added that he had earlier asked Malaysia to help the airline obtain loans from local banks instead of borrowing abroad, because local-currency loans carry better interest rates and terms.
Representatives of Alton Aviation Consultancy also attended the meeting, two of the sources said. Earlier reporting had said the finance ministry hired the firm to assess the funding needs of the loss-making airline. The finance ministry declined to comment, while the transport ministry and Alton did not respond to requests for comment.
Fuel price surge and a sharp fall in AirAsia shares
The airline has been squeezed by jet fuel costs that climbed 66% in the second quarter from the previous quarter, reaching an average of $183 a barrel. The increase has been linked to the US-Israeli war on Iran.
The meeting came after a report last month that the Malaysian government had asked Malaysia Airlines and Batik Air whether they could take over AirAsia’s domestic market share as part of scenario planning. Authorities are monitoring the carrier’s finances. The following day, AirAsia’s shares dropped as much as 21%, falling close to four-year lows.
AirAsia’s debt plans and outlook on demand
According to Fernandes, AirAsia controls about 60% of Malaysia’s domestic aviation market and employs 26,000 people. As of June 30, the airline held cash and bank balances of 954 million ringgit ($233.65 million), against current liabilities of 18.4 billion ringgit.
For the second quarter ended June 30, AirAsia posted a net loss of 831 million ringgit ($204 million). The loss was driven by higher jet fuel costs and foreign-exchange losses of 331 million ringgit. The company’s stock has lost more than 70% of its value this year.
The airline is aiming to raise up to $1 billion from international debt markets, along with 700 million ringgit in local credit facilities, mainly to refinance existing borrowings. Fernandes said on Friday he expected the $1 billion to be completed between December and February. Half of it would be used to refinance costly loans, with the remainder going to working capital and settling what he called extended liabilities.
Fernandes also said AirAsia was planning for 12 months of high oil prices and had not yet seen demand fall. Seats filled stood above 80%, even though jet fuel had at times reached $200 a barrel. He acknowledged that prices above that level had not been tested, and that demand would eventually weaken, though he was unsure where that threshold lay.
