How Good Is AirAsia's Latest Earnings?

AirAsia reported its earnings last night and it had been a while since I made an update on this company. (past postings: AirAsia )

Before I opened its earnings, I thought about it. What was my expectation(s)? I had expected earnings to be there. Why? The Ringgit had appreciated nicely during the reported financial quarter, hence I expect huge forex gains and also debts should decline a bit because AirAsia had asked its new plane deliveries to be deferred.

This was on the Edge: Update AirAsia 1Q net profit up 10% to RM224m

So we have rm 224 million of profit.

Time to open its earnings notes.

Firstly bank borrowings.



As expected the loans did go down but the size of the debts as usual is scary.

Again, the issue of why the loans did go down was because AirAsia had deferred its delivery of new air craft problem. And in this, lies the BIG problem.

Time to look for its capital commitment notes.


Total capital commitments outstanding is an insane 24.3 Billion!!!!!!!!!!!!!

On today's Business Times

• So far, AirAsia has received 70 of its A320 aircraft on order, with another 105 aircraft to be delivered through to 2015. ( Read more: AirAsia seeks to slow down A320 deliveries )

Another 105 aircraft to be delivered through to 2015!!

Well, by 2015, I do expect AirAsia debts to explode.... unless fresh capital raising is done! (LOL! Hello AirAsia Thailand listing?)

And I did not like to see that AirAsia did not give an exact breakdown of their loans denominated in USD, RM and Euro. It would be nice to understand how much of the borrowings are in US. How much of the borrowings are in Euro.

With the info, at least we can understand more on its forex gains.

Time to look at AirAsia forex gains.

Firstly its cash flows.

Ah, yes, I do note the size of the depreciation. 115.429 million is a lot of money and thanks to it, AirAsia cash did improve a lot for the quarter. But depreciation is really needed because aircraft do depreciates extremely fast.

Anyway as you can see from the cash flow statement, unrealised foreign exchange gain is a massive 286.326 million.

Page 15, Review of Performance tells a lot.

Here are the points...

1. Ticket sales improved slightly by 2%.
2. Its ancillary income and other operating income helped boost revenue by 10%.
3. Fuel and oil expense increased by a whopping 58%.
4. Derivative loss is 21 million. (whatever happened to the words 'no more derivatives oil bets' ? see: What Lah! Didn't AirAsia Said No More Oil Bets? )
5. And forex gain is 165.985 (this one I don't understand at all. How come the forex gain here is different than what was stated in the cash flow?

Here is Airasia's Finance (Cost)/Income statement. It also shows a forex gain of 165.985 million.


Anyway, so from a net profit of rm 224 million, 165.985 million is derived from forex gain. And as we saw, last year corresponding quarter, AirAsia had a massive90.374 million in forex exchange losses.

And if we minus out 165.985 million, AirAsia profit is only a mere rm 58.015 million.

Now is a profit of rm 58.015 million justifiable the fact that AirAsia needed a massive debt of 7.186 billion to generate such a profit? And mind you, AirAsia has a current capital commitment of 24.3 billion!

Huge debts to generate such small profits.

Insanity?

I dunno. You tell me.

last but not least... in AirAsia's balance sheet..

Look at all the amount due from 'jointly controlled entity' and amount due from associates.

The sum owed is not small, yes?

I cannot understand it. AirAsia itself owes it banks so much money, and here it is, allowing its associates and jointly controlled entity to owe so much money in return.