AirAsia X Has A Gearing Of 200%?

On Star Business: How will Airasia X pay US$2.2b for the 10 Airbus ordered?

• Thursday June 18, 2009
  How will Airasia X pay US$2.2b for the 10 Airbus ordered?
  By C.S. TAN
  
  PETALING JAYA: AirAsia X’s latest fleet purchase has raised concerns among analysts that it is following the high debt-leverage route of AirAsia Bhd, expanding the risks to its bankers.
  
  The long-haul, low-cost airline company’s CEO, Azran Osman-Rani, said there was a fundamental difference between the business model of AirAsia X and that of traditional airlines.
  
  “For AirAsia X, most of its tickets are sold through the Internet and bought by customers months before their flights.
  
  “As for traditional airlines, tickets are mainly bought through agents and paid by customers just two weeks before the flights.
  
  “The agents may even pay the airlines after the flights,” he told StarBiz in a telephone interview yesterday. The airline has a similar business model as AirAsia as both are low-cost carriers.
  
  “We have forward cash. In this business, what is important is cashflow. We’re holding the forward cash,” he added.
  
  It was announced on Tuesday that AirAsia X placed a firm order for 10 Airbus A350 aircraft which carried a list price of US$2.2bil.
  
  This follows an earlier order for 25 Airbus A330 planes for delivery between last year and 2015.
  
  On the company’s debt leverage, he said AirAsia X’s gearing was about 200% and was not expected to increase.
  
  The 10 planes in the latest order will only be delivered from 2016.
  
  “It’s not like we’re buying all the planes at the same time. But it is important to place the deposits now. This is to ensure we’ll have the delivery slots. The deposit is just US$10mil, we’re not paying US$2.2bil yet,” he added.
  
  Progressive payments will start 36 months from delivery but the bulk of payments will be made when the planes are delivered.
  
  By the time the A350 planes are delivered from 2016, most of the borrowings taken for the A330 planes would have been repaid.
  
  Azran said some equity analysts did not understand AirAsia X’s business model, but that was not important.
  
  “What is important is what the banks do. If the banks are worried with our gearing, wouldn’t they be the first to run away?
  
  “But the banks are saying they’ll fund all our deliveries this year,” he said.
  
  AirAsia X will take delivery of three Airbus A330 planes between September and December. Financing has been obtained for these planes.
  
  Currently, the airline flies five planes to London, Melbourne, Perth and Gold Coast (Australia), and Tianjin and Hangzhou in China.
  
  Its most profitable routes are Gold Coast and Hangzhou because these were the first two routes flown by the airline.
  
  “They’re more matured markets for us than London or Melbourne. It’ll take us a year to build brand awareness for the newer routes and, initially, the pricing has to be aggressive,” he said.

Huge, huge talk from a company with a gearing of 200%!!!

So according to him, the critics of its EXTREMELY high geared business model do not understand AirAsia's business model. LOL!

Yeah, it's not important.

A gearing of 200% is not important either.

LOL!

Yeah, what's important is their bankers are willing to fund their deliveries 'this year'.

Bankers... hmm.. if we look back at the past Megan Media debacle, Megan's insane gearing was there for all to see but yet Megan Media managed to hoodwink their bankers with their books. Now I am not saying AirAsia is crooked BUT all I am saying is sometimes not all BANKERS are smart and one can look at the current financial crisis and one can find many a not too smart banker!

Anyway debts is good eh? Bankers lend, we take, hor. Life is good and one can build business models with 200%!!

We shall see, won't we?

:D