AirAsia Group Bhd.’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, auditor Ernst & Young said.
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, Ernst & Young said in a statement to the Kuala Lumpur stock exchange Wednesday. The financial performance and cash flow have now been further hit by virus-related travel restrictions.
The slump in air travel and the carrier’s 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,” Ernst & Young said in its unqualified audit opinion statement.
Covid-19 plunged the aviation industry globally into crisis as border controls and health concerns vaporized demand for air travel. AirAsia on Monday reported a record quarterly loss of 803.8 million ringgit. It wasn’t until late March and the end of the quarter that the budget airline suspended flights.
“This is by far the biggest challenge we have faced since we began in 2001,” AirAsia’s Chief Executive Officer Tony Fernandes said 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 said in an exchange filing Wednesday that Ernst & Young’s statement and a decline in shareholder equity triggered the criteria for a so-called Practice Note 17, which applies to financially distressed companies. However, the airline won’t be classified as PN17 as the Malaysian exchange suspended application of the status from April through June next year as part of relief measures in light of the coronavirus pandemic.
AirAsia’s shares were suspended from trading in Kuala Lumpur on Wednesday. They will resume trading at 2:30 p.m. local time.
AirAsia needs at least 2 billion ringgit this year to stay afloat, according to K. Ajith, an aviation analyst at UOB Kay Hian Pte 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.
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, Ernst & Young said.
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, the auditor said.