Deferment of aircraft boosts AirAsia shares

06 August 2010

PETALING JAYA: AirAsia Bhd’s stock was one of the flavours of the day yesterday, buoyed by its decision to defer delivery of seven aircraft, a move deemed favourable by analysts.

Analysts believed the delivery deferment would allow the budget carrier to optimise its fleet capacity while reducing capital expenditure and net gearing. As at March 31, AirAsia’s net gearing stood at 2.25 times.

Shares in the carrier jumped to more than a 30-month high yesterday, appreciating 15 sen, or 10%, to RM1.65. It was also one of top gainers and the third most active counter with 33.5 million shares traded.

“Our share price is beginning to show its true potential but, once people start analysing properly after the second quarter, they will see even more value,” group chief executive officer Datuk Seri Dr Tony Fernandes said in his Twitter post yesterday.

On Wednesday, AirAsia announced that it had deferred the delivery of seven Airbus A320s to 2015 from the original delivery period next year as it expected infrastructural constraints with the current airport facilities.

The seven planes are now due for delivery from April to November 2015 from the original March to October 2011.

AirAsia said slowing the deliveries would allow it to optimise its fleet and avoid costs associated with leaving the aircraft idle or underutilised due to infrastructural limitations.

Analysts said AirAsia might have doubts that the new low-cost carrier terminal (LCCT) would be completed on schedule, hence the deferment. They said more importantly, AirAsia’s aircraft deferral would not involve any penalty.

While some analysts agreed with the company’s reasons to defer given the uncertainties over completion of the new LCCT, they said the deferment might allow the market to absorb the available capacity.

“AirAsia has been very aggressive with the latest route to Seoul, South Korea. Deferring the aircraft will let the market absorb the capacity available first,” an analyst said.

ECM Libra Investment Research said based on its assumptions, earnings impact to AirAsia (which does not equity account its associates) was likely to be minimal.

“We estimate that the deferment will result in a 2.2% increase in FY11 (financial year ending Dec 31, 2011) earnings per share as lower interest expense and depreciation outweighs capacity cutbacks. However, FY12 earnings per share will be reduced by 3.6%,” it said.

AirAsia is expected to release its second quarter results on Aug 18.

The International Air Transport Association expects global airlines to post a profit of US$2.5bil in 2010 from a loss of US$2.3bil last year and say Asian carriers should do well.

“Although the fleet expansion will be relatively less aggressive for FY11, AirAsia could benefit from lower operating and fuel costs from this deferment and perhaps this will allow the group’s internal restructuring, such as listing of its associates, and solve the overhang issues in its balance sheet,” Kenanga Research said.

It added that with the deferment, the earnings growth for FY11 would depend on yield play and further cost efficiency on the back of growing demand for low-cost carriers in the improving airline industry.

By Leong Hung Yee

The Star