Friday, 25 November 2016

AirAsia's New Lease of Life

Interesting article by Bloomberg.

Some snippets:

AirAsia loses money at the operating level on ticket sales, just about makes it back on ancillary revenues, but makes its real money from selling and leasing back its own aircraft.

That makes plans by Group CEO Tony Fernandes to sell this golden goose rather unsettling. The unit could be separated as soon as December, he said earlier this year, and may fetch as much as $1 billion.

There would be some definite benefits. Investors have often looked askance at AirAsia's leasing business, particularly because many of its sale-and-leasebacks have been not to lessors but to its own affiliates in Indonesia, Thailand, the Philippines and India. AirAsia's stock shed more than half its value in less than three months last year after GMT Research issued a report criticizing the accounting used in such deals, though it has since more than recovered what was lost.

Putting the leasing unit at arm's length will both help Fernandes pay down debt, and remove the shadow GMT's report cast.

Still, any sale won't come without risks. Investors who've become accustomed to the comfortable cushion provided by all those lease earnings will find the business has less to fall back on if times grow leaner.

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