Today AA issued a statement explaining the hoo ha by GMT research:
AirAsia does not consolidate the accounts of its associates’ operations in Thailand, Indonesia, Philippines and India due to regulatory reasons as the Company is not allowed to own more than 49% (40% in the Philippines) equity interest in each of the entity. Therefore, the associates’ profits and losses are being taken into account on AirAsia’s income statement via equity accounting method set by the regulators. Although there are regulatory barriers, we recognise that we are to operate as one big economic entity because of the intertwined nature of our business.
BALANCE SHEET, CASH FLOW AND MANAGEMENT OF GEARING
AirAsia’s cash flow continues to strengthen due to capacity reductions taken last year, improved demand especially with the recovery in Chinese traffic, and a much more rational marketplace in all our territories especially Malaysia. During the Management’s roadshows and the latest earnings briefing, the Management outlined various strategies in detailed, on the active measures the Company is doing to manage gearing level. This includes
(i) to grow cash further through operations,
(ii) capacity management,
(iii) monetising non-core investments if valuation is right and as mentioned above, through
(iv) recovery of debt from IAA and PAA.
Currently, the Company’s net gearing level stood at 2.47 times. The Management would like to remind longterm shareholders that the Company’s net gearing was at 4.2 times a few years back where the shareholders were told that the Company would reduce it down to 1.5 times. Again the Management is confident of bringing net gearing down to around 2.00 times by end of 2015.
This does not include potential cash of RM1 billion of repayment from IAA and PAA, potential additional sale and leaseback transactions, and potential sale of investments (eg. Tune Insurance, AirAsia Expedia etc., which the Management has no intention of selling as there are tremendous upside values in these investments). The Management wants to also highlight the strength of AirAsia’s balance sheet as the Company owns more than 120 aircraft. There is huge demand for sale and leaseback (“SLB”) on the Company’s aircraft and the Management is looking into doing SLB of up to 20 aircraft this year, with no increase in operating leverage.
AirAsia’s gearing also will continue to decrease over the next 2-3 years as the Company has cut aircraft acquisition from an average of 25 aircraft per year to an average net addition of only 4 aircraft per year over the next three years.