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AIRASIA GROUP: Shares Fall as Auditor Raises Going Concern Doubt

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Kyunghee Park at Bloomberg News reports that AirAsia Group Bhd. shares slumped nearly 18% when trading resumed following a suspension that came as auditor Ernst & Young said the carrier’s ability to continue as a going concern may be in “significant doubt.”

In a statement to the Kuala Lumpur stock exchange, Ernst & Young said AirAsia’s current liabilities already exceeded its current assets by MYR1.84 billion ($430 million) at the end of 2019, a year when it posted a MYR283 million net loss, Bloomberg discloses. That was before the coronavirus crisis, which has further hit the carrier’s financial performance and cash flow.

The slump in air travel and poor 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, Bloomberg relays.

Covid-19 plunged the aviation industry globally into crisis as border controls and health concerns vaporized demand for air travel. According to Bloomberg, AirAsia on July 6 reported a record quarterly loss of MYR803.8 million. 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,” Bloomberg quotes AirAsia’s Chief Executive Officer Tony Fernandes as saying.

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, Bloomberg relays.

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 MYR1 billion, people familiar with the matter said at the time, recalls Bloomberg.

According to Bloomberg, AirAsia said in an exchange filing on July 8 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, the report states.

AirAsia needs at least MYR2 billion 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,” the report quotes Mr. Ajith as saying.

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, Bloomberg relays.

Bloomberg adds that 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.

AirAsia Berhad provides low-cost air carrier service. The company provides services on short-haul, point-to-point domestic and international routes. AirAsia, headquartered in Malaysia, operates from hubs in Malaysia, Thailand, Indonesia, Philippines and India.

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