Sunday, 9 August 2020


A good friend told me about his trip to the cinema recently.

There were the usual checks, MySejahtera, all the usual stuff. Moviegoers were reminded to keep their masks on during the movie.

And guess what happened? Pretty much everyone removed their masks. How else to eat popcorn?

When your greatest fear is the asymptomatic carrier, this is the equivalent of your worst nightmare, really.

Imagine two hours in a crowded room, everyone breathing the same air, minimal circulation. You almost wish to catch E Coli from that dirty movie theater seat than breathe in a coronavirus droplet.

In confined spaces, it's really hard to have a safe customer experience. At least the way the customer feels it. 

And when your entire business is premised upon having customers bundled up together in confined spaces for hours on end, forgive your customers for feeling just a little bit concerned, and just a little bit ehhhhh no thanks.

In the context of COVID-19-related fears, flying is about the same as moviegoing. It comes with a similar existential challenge : getting people to fly again, and only if there are places to fly to.

I recently flew on a domestic AIRASIA flight - my first during this pandemic - and had some wild thoughts.

Would there be social distancing? Would they do the heroic thing and rip apart the middle seats?

Will I feast my eyes - or burn them - on this???


This flight turned into a field homework of sorts. I was keen on seeing how AIRASIA operates now, from the flight schedules down to the fittings in the aircraft.

Me being me, everything I see, touch, or feel is stock related. And I've thought deep and hard about Tony AIRASIA as a investment trade.

Before I get to the stock-related matters, I'll just describe the experience of taking a flight during these trying times, for the benefit of those who have yet to do so.

AIRASIA has resumed flying local routes with domestic travel reportedly back to 90% capacity. But its fleet of 245 planes is still woefully underutilised due to the lack of international flights.

Below is a list of flights in one afternoon in August at klia2 - it does not even fill up the board. If we include the morning flights, we'd probably get about 60-70 domestic flights daily at the moment.  The airline said it's doing about 600 flights weekly to 16 local destinations. So that sounds about right.

As for AAX? Zero flights, of course.

I ended up on an Airbus A321neo, a sleek new aircraft that was only taken delivery late last year.

It was a long-range plane for a short-haul flight, with the total traveling distance of a mere 400 kilometers. It's not Penang-to-Langkawi kind of short haul, but short enough.

I'm not the nuttiest aviation enthusiast out there, but you've got to appreciate the new Mirus Hawk slimline seats. Better legroom, less bulk, comfier.

Unfortunately, no full-on Hazmat/jester suits for the flight attendants as I had hoped. Just goggles and gloves. Service is normal.

It was a fairly crowded domestic flight, with no gap seating or anything like that. It was a fairly mundane flight with no additional stringent SOPs.

At least the flight lasted less than a length of a movie, so most passengers kept their masks on.

Notice the little things, though. The number of flights that hardly fill up the board. A powerful plane for a short flight.

Resuming domestic flights will not save AIRASIA. Only a cash infusion will.


AAX and AIRASIA are PN17 companies in everything but the label. There are serious concerns about... well, their ability as a going concern.

It's a liabilities issue. It's a cash flow issue. It's the nobody flies during COVID issue.

There's no need to mention all the controversies that have revolved around them like an ominous comulonimbus cloud over the past year. Those are well reported.

If you simply print out the financial statements of both airlines and then some of the analyst research reports, you'd pinpoint the one thing they need the most, really fast.

Of course it can only be this :

Money, and lots of it.

I don't want to be melodramatic and call it a life-and-death situation, but the arithmetic is very simple.

At AIRASIA's current cash burn rate of more than RM500 million a month to cover operating expenses, it will run out of money by the end of the year. That's like.. four months away.

There's another key deadline. By 31st of August 2020, we will find out whether the recovery phase MCO will be extended. With all that's going on domestically and in the world at the moment, this looks very likely, which means one thing : international routes will remain shut.

In this scenario, AAX is almost certainly doomed without its own financial rescue, according to one analyst report that has gone viral... because the numbers don't lie.

See that one phrase in the last paragraph? 'Shareholder support'.

It implies one thing, which is crucial to our understanding of whether these airline stocks are worth a trade.

I only said 'stock' because with a target price of zilch, I'm willing to overlook AAX right now. It's already troubled in pre-COVID times, with supposedly innovative business model that has successfully generated mostly negative returns on equity since inception.

From AAX 2019 Annual Report

I'm not one of those people who only opened their CDS account this year, so I can vividly remember a rosier time when AAX was listed at above RM1 per share. What's the target price seven years later?

OK, let's just look at recent price performances, so I can convince you I'm not nitpicking on the worst parts only. I'm not trying to be an airhole here.

As I was writing this, AIRASIA's stock is down 45% from its June 2020 peak.

As for AAX, their long-term shareholders would probably make guttural sounds similar to the way you'd pronounce the stock code. Their shares are down 57% over the same period.

The persisting shareholders' fears are existential. It's not just the operational viability of leveraged airlines during COVID times, it's also the stocks themselves.

Going back to rights issue. In essence, it's just fundraising via public markets. In other words, raise money via new share issuance.

Existing shareholders need to cough up the money, upon which they will be entitled to new shares for their troubles. But with new shares comes dilution, which fractionalises the worth of your current shares.

This is my most pertinent point :

The likelihood, and proportion, of a rights issue
determines the tradeability/investability of the stock.

Some reports suggest AIRASIA needs RM2 billion at least in fresh cash to survive. A rights issue of this magnitude would cause the stock to lose altitude... really, really fast.

For context, this is what happened to SAPNRG's stock after its ball-busting RM4 billion rights issue that was announced in August 2018 and concluded in January 2019. Read this for a more thorough account on what happened to the stock on the day the rights issue was announced (spoiler alert : we traded it).

SAPNRG weekly chart from August 2018, which was when the rights issue was first announced.

The dilemma here is that no one wants to kill the stock price - least of all the biggest you-know-whos shareholders - so other fundraising avenues are aggressively being pursued.

Another viable alternative is a private placement, but that piece of news has died down and maybe you can say 안녕히 가세요 to that for now.

What about a good old-fashioned bank loan, you say? Malaysian banks won't touch lor... high risk credit. You think this is a time for banks to live dangerously? They've already done that with the oil and gas players. Forget airlines.

But just as I was feeling all smug about the above conclusion, this came out... how wrong was I, much shame on my next seven generations.

So with this positive news, what's next for the stock?

I currently view AIRASIA as a distressed asset, and the stock is distressed equity.

The prevailing market perception is that either there's more downside to the stock, or that it's set to fly sky high if its continued existence is assured.

If there is no rights issue element to raising those much needed funds, and if these funds can be secured elsewhere, the combination of new cash and the assurance of non-dilution will likely cause the stock to shoot up, never mind the possibility of an MCO extension to 31 December 2020.

We are living in times where perception overshoots the runway. The fundamentals are still sipping teh tarik in the Sky Lounge. So expect some serious trading interest in AIRASIA, one way or the other.

But if a rights issue does indeed come up - remember that there's another cool billion to raise somewhere, perhaps a bit more just to get some financial comfort - the impact to the stock may be prolonged. The dilution from a multi-billion ringgit rights issue would almost certainly hit the stock hard.

As a situational/event-driven trade, some hedge funds or massive uncles will probably have put on a trade already, with the view that the airline is far too important to fail. You might even call it a quasi-national strategic asset.

The main risk is of course twofold : prolonged shutdown of international routes, and dilution risk from a rights issue, if that option becomes reality.

And according to that article above, even the financing package comes with huge caveats. Banks can be a lot of things, but the lenders are not dumb.

Drawdown on the loan is contingent upon AIRASIA flying to international destinations? OK, all the best with that.

And of course, that 80% Danajamin guarantee would have to be non-negotiable.

But I am not here to speculate or sway you into a conclusion. I'm just sharing the facts, and you will have to decide which side of the fence you want to be on.