AirAsia Group Bhd co-founder Tan Sri Tony Fernandes is looking to reduce the airline’s reliance on costly private credit as elevated oil prices put further pressure on its already stretched finances.
“I don’t want to take any more private credit debt because it’s expensive,” Fernandes said at a briefing last week. “I don’t want more debt. I don’t like debt.”
Fernandes is considering a US$1 billion refinancing package from Middle East banks to replace existing debt carrying interest rates of as much as 11%. AirAsia is also seeking RM700 million in local credit facilities, with the refinancing targeted for completion by December or January.
The proposed refinancing could reduce annual interest costs by about RM200 million if AirAsia can lower borrowing rates to between 7% and 8%, from around 11%, according to Samuel Yin, associate director for equity markets research at Maybank Investment Bank.
However, the airline faces a difficult operating environment as oil prices remain above US$100 a barrel. AirAsia does not hedge its fuel costs and has recorded two consecutive quarterly losses amid rising fuel expenses.
Its total debt reached a record US$4.1 billion at the end of June, although much of the increase reflected Fernandes’ consolidation of AirAsia’s airline businesses from Capital A Bhd.
AirAsia’s first-half financial statements also showed liabilities exceeding assets by RM606 million. It had RM954 million in cash against RM18.4 billion in current liabilities due within the next 12 months, giving it cash coverage of about 5%.
Independent aviation analyst Andrew Light said airlines would normally hold cash and facilities equivalent to at least 10% to 20% of annualised revenue. AirAsia’s cash represented only 4.3% of its annualised revenue of about RM22 billion.
The airline’s operations also consumed RM582 million in cash during the first half of 2026, highlighting the pressure on its ability to generate funds internally.
“AirAsia likely needs either a real improvement in operating cash flow or credit enhancement,” said Linus Benjamin Bauer, founder of aviation consultancy BAA & Partners. “Without that, cheaper money is difficult to justify.”
AirAsia has also faced pressure from suppliers and lessors. Bloomberg reported in June that the airline had fallen behind on some supplier payments and asked lessors to defer rental payments on more than 16 aircraft after fuel costs surged.
The airline had also sought changes to a US$200 million private-credit facility involving Ares Management Corp and Indies Capital Partners Pte Ltd, including allowing aircraft lessors to share revenue from routes pledged to the facility.
Fernandes denied renegotiating with Ares and said AirAsia was returning aircraft it did not need during the current crisis. He also disputed a Bloomberg report concerning the sale of six new Airbus aircraft since the start of 2025.
Citigroup downgraded AirAsia’s stock to sell from buy this week, saying limited cash and equity buffers left little room for another fuel-price shock.
“We see jet fuel prices as the key determinant of future liquidity and profitability as balance sheet constraints remain,” Citigroup said.
Gerry Soejatman, an independent aviation analyst in Jakarta, said raising funds on commercial terms could become increasingly difficult unless AirAsia can demonstrate a credible plan to return to positive cash flow.
“Unless Tony can present a credible business plan to get the airline back to positive cash flow, raising the money AirAsia needs on commercial terms will become increasingly difficult,” he said. “That challenge will only get harder if oil prices stay elevated or rise further.”
Fernandes has rejected the prospect of a government rescue, saying AirAsia survived the Covid-19 pandemic without a bailout.
“AirAsia survived the pandemic without a government bailout and the brand has shown demand resilience,” Bauer said. “But with liquidity this tight, the margin for execution error remains limited.”
Bloomberg
