1) Owners of AirAsia X negotiating from a position of power - The owners can just walk away. Post restructuring the company will need to raise RM300m-400m, and borrow another RM200m, to function for the next 2 years. Thus the current controlling shareholders will probably have to pony up RM70-100m eventually. The owners can walk away and restart a new airline, or even takeover Malaysia Airlines-Firefly on a probable "better deal".
2) Mostly leases, planes and maintenance contracts - They are asking for a massive share consolidation (a must), and a never heard of before haircut. To be fair, they did not yet "use" most of these liabilities. Basically to get out of future commitments. It is not a lack of professional integrity but rather a realignment of new reality in light of black swan events.
3) No Choice - The low-cost, medium-haul airline, which has grounded all its flights due to the Covid-19 outbreak, is asking creditors and suppliers to forgo over RM63bil in liability and instead accept a maximum RM200mil in payment. While the proposal may sound atrocious, there's no other reasonable choice. If you offer too much, say RM500m to creditors, it will have grave difficulty to even raise RM300m later to move forward. Plus you can't really make use of the leases in the foreseeable future. That is why listed companies has to be of limited liability. Creditors have to take on risks as well when lending to clients. I mean, if you break it up now, it has a negative value, i.e. creditors get nothing except those who are secured.
4) Likely Strategy Going Forward - Tune Group Sdn Bhd, which is the investment vehicle owned by Fernandes and Datuk Kamarudin Meranun, is the single largest shareholder of AAX with a 17.8% stake. This is followed by AirAsia
Bhd, with a 13.8% stake. The substantial shareholders do not hold a lot of shares now. There is no rush as they are prepared to write them all off should the creditors do not agree to the deal. They can easily up their stakes later upon successful restructuring by taking up new shares issuance to inject funds then.
5) Sour taste in the mouth - The atrocious haircut leaves a sour taste in most investors perception. Like that, anyone also can do business, just don't pay. Well, you have to be big enough and present a "lose a lot or lose everything" to creditors. Can the current controlling shareholders do better?
6) Equity in restructured entity for creditors - I believe a more equitable structure would be to add an equity component for creditors in the new entity. It cannot be to the detriment of the new entity going forward. Plus it shouldn't ask for new capital injection by the creditors. If I was advising the creditors, let go of the existing claim, go for 100% debt forgiveness. Make sure the company (controlling shareholders must raise RM300m, giving partial personal guarantees) within the next 3 months after the restructuring. After the capital injection, creditors must be issued new shares amounting to 20% of the new paid up of new entity. Why 20%? It cannot be more than the controlling shareholder.The figure has to take into account the dilutive effect on existing minority shareholders. I believe that would be a more equitable way moving forward for all parties.
