AirAsia Survival Doubted By Auditor, Shares Drop

SINGAPORE—Trading of AirAsia Group Berhad stock was temporarily halted on the morning of July 8 after auditor Ernst & Young (EY) questioned the LCC’s ability to shore up its funds to stay afloat.

EY highlighted the “existence of material uncertainties” as the COVID-19 pandemic drags on, casting “significant doubt” on AirAsia’s ability to continue as a going concern. Although trading resumed in the afternoon session, the LCC’s value went into freefall. At the end of the trading day, AirAsia shares on the Malaysia Stock Exchange (Bursa Malaysia) had fallen 17.5%.

Such auditor disclosures usually trigger the issuance of Bursa Malaysia’s Practice Note 17 (PN 17), reserved for financially troubled companies. However, the airline said in a stock exchange note that it had not been classified as a PN17 company due to special relief granted by the bourse that became valid in April and runs to to June 2021.

PN 17 ordinarily comes into effect: when a company’s funds are less than 25% of its total paid up capital; or when one of its subsidiaries is wound up; or when auditors have expressed adverse opinions on the company; or when it has defaulted on its loan interests and repayments.

In normal circumstances, the affected company must submit a regularization plan to the authorities within 12 months laying out how it will restructure and revive its operations. 

The EY disclosure added that AirAsia had incurred a net loss of MYR283 million ($69 million) for fiscal 2019 ending Dec. 31 2019 and that its current liabilities exceed its current assets by MYR1.8 billion. The report comes a day after AirAsia posted a net loss of MYR953.3 million for the first quarter of 2020 ending March 3, the largest deficit the company has recorded since its listing in 2004. AirAsia said in that disclosure that its equity as of March 31 was 37% of its share capital. 

In its Q1 report, group CEO Tony Fernandes said the LCC was in discussions with “a number of parties” for potential joint ventures, as well as capital raising exercise with investment bankers, lenders and potential investors. The LCC was also reported to be in talks with SK Corp to sell a 10% stake in itself to the South Korean conglomerate to raise MYR330.4 million.